Be Careful You’re Not Giving Your Credit Card Issuer a Gift
In a few short weeks, holiday shoppers are expected to plunk down a whopping $160.5 billion on carefully chosen gifts for family members, friends and business associates.
So what’s your friendly credit card issuer getting from you this holiday season? Perhaps more than last year if you’re not careful.
Shoppers may not fully realize it, but myriad conditions--in some cases more restrictive ones than a year ago--such as shortened grace periods and higher fees on late payments and exceeded credit limits could exact a heavy toll.
Even the few consumers who regularly pay off their balances each month or who use their cards infrequently may be “punished” for their behavior, consumer groups and industry experts say.
That’s because “credit card issuers are seeking to maximize their fee income. We saw it last year, and we’re seeing it again this year,” said Stephen Brobeck, executive director of the Consumer Federation of America in Washington. “Holiday shoppers need to be aware of this.”
The trend for higher credit card fees comes in addition to other charges that have been creeping up over the years, such as service fees on savings accounts; fees for use of automated teller machines or online and in-bank teller services; and a fee for failure to maintain a minimum account balance.
“Consumers are far more aware today of these bank fees than they were three or four years ago, but they still don’t deserve an A on their shopping report card,” said Robert K. Heady, publisher of Bank Rate Monitor, a North Palm Beach, Fla., newsletter that tracks industry trends.
Consumers are expected to spend an average of nearly $900 per household this holiday season. Heady says shoppers can get caught up in a buying frenzy and fail to pay attention to card issuers’ changes in fees or restrictions.
“They’re not taking enough aggressive steps to protect themselves, to find the cheapest card they can find or read the fine print about fees,” he said.
A few of the changes shoppers should be aware of, according to Heady and representatives of other groups:
* Higher interest rates for misbehaving. If you’re late with a payment or exceed your credit limit (even once), you may find the rate increased for months to come--in some cases, to an annualized rate as high as 23%. (The average annualized rate now is just less than 17%.)
* Higher fees. Many card issuers are raising the standard fees charged to people who make late payments or exceed credit limits. One recent consumer survey notes that fees jumped an average of 26% this year. A notable change: Although no company charged a late fee of more than $18 two years ago, 46% do today.
* Annual fees. The trend of earlier this decade to eliminate annual fees is reversing. Check your statements and your mail.
* More penalties for responsible use. At least one credit card issuer now wants to charge customers $15 for not using their cards for six months and $25 if they decide to close the account. A few impose an annual fee on customers who customarily pay in full each month.
* Shrinking grace periods. Most card issuers offer a 25-day grace period in which to pay for new purchases without incurring finance charges. Some banks have shortened that time to 20 days. In some cases, then, you might be hit with a finance charge before you even get your bill. (For those who carry a balance from month to month, most cards have no such grace period.)
* Disappearing benefits. Many banks enticed customers with extras such as insurance, discounts on travel, rebates on certain purchases or protection if a purchased item was damaged or lost. Some card issuers have cut back on these extras--and done so without the same fanfare that accompanied their launching.
Banks, for their part, contend that higher fees are necessary in today’s business climate and that they are also a way to offset losses from bad debt.
American consumers incurred more than $1 trillion in credit card debt last year, and the credit card account delinquency rate hit a record high of 3.72% in 1996. In just the first six months of this year, it reached 3.69% . The number of personal bankruptcy cases has reached all-time peaks recently too. “Banks are merely making prudent business decisions,” said Nancy Ness Judy, a spokeswoman for the American Bankers Assn., a Washington-based trade group. “Isn’t it the goal of any business to make money?”
