Credit Card ‘Gotchas’ Bleed Customers With a Thousand Cuts

It’s getting harder and harder not to get nipped by your credit card company. Fees, fines and fine print are proliferating, and even the best customers are getting hit.

Credit card issuers Providian and First USA, for example, admitted last year that many of their customers had been charged late fees for on-time payments--something that had been alleged by thousands of angry borrowers and outlined in several lawsuits.

The two credit card giants blamed their processing systems for the mistakes and refunded millions of dollars.

But many of the dirty tricks played on credit card users aren’t mistakes at all--in fact, they’re quite deliberate. Here’s some of the latest “gotchas” consumers face:

* “Pre-approved” cards that aren’t. This long-running phenomenon seems to be getting worse as credit card companies become more sensitive to applicants’ recent credit histories and as they indulge in more bait-and-switch tactics. Few people who respond to promises of a card with a 7.9% fixed rate, for example, actually get approved; instead, companies often send cards with less favorable terms.

Offering low-rate cards “is a marketing gimmick,” said Robert McKinley, president of CardWeb, a credit research firm. “Approval rates are lower than the actual interest rates.”

Some applicants wind up with no card at all. The lists of screened candidates that credit card issuers get from the credit bureaus can be flawed, or the applicant might have applied for too many cards in the weeks between the time the list was drawn up and the time the actual offer was sent.

Credit card companies have been blindsided by a rising number of consumer bankruptcies, which is why they are sensitive to signs that an applicant may be taking on too much debt, McKinley explained.

* But the credit check issue cuts both ways. Applicants who apply for a card and don’t get it still wind up with an “inquiry” on their credit reports. While nothing on the credit report says whether or not the credit was granted, having too many “inquiries” by itself can hurt a credit rating, said Craig Watts, a spokesman for Fair, Isaac & Co., a leading credit scoring firm.

Consumers can’t do much if they’re turned down for a card--issuers aren’t likely to reconsider their decisions. But no one has to accept a substitute card; simply cut it up and send it back with a note declining the offer.

* Balance transfer offers that boost your debt. Some credit card companies offer 3.9% promotional rates for a few months on balances transferred from another card. Hidden in the fine print are fees of 2% to 3% on your transfer, which can effectively wipe out any savings--particularly for those who were planning to pay off the balance soon or transfer it to another card.

Credit card issuers say the fees are designed to prevent such “rate surfing,” and credit card profits have indeed suffered as consumers have rolled their balance from one low-rate offer to another. But the issuers aren’t doing much to bring the issue to card applicants’ attention, and it can be a painful surprise.

* Fixed rates that aren’t. Nearly 80% of the nation’s credit cards have variable rates tied to some benchmark, typically the prime rate. But even those cards that ostensibly offer “fixed” rates can change their terms at any time with 15 days’ notice.

“It’s not like a mortgage. You can’t lock in a credit card rate even if it’s ‘fixed,’ ” McKinley said.

* Eeny, meeny, miney rates. Some companies offer vastly different rates for purchases, balance transfers and cash advances--and it’s up to consumers to know the difference. Providian’s Aria Visa Platinum Premium card, for example, offers a 7.99% rate on purchases, a rate between 12.99% and 21.99% on balance transfers and a 21.99% rate on cash advances. Those who don’t qualify for the premium card could wind up being charged processing and annual fees of up to $89 each for a card with a 23.99% rate on transactions.

* Secretive lenders. Some credit card companies and other lenders deliberately withhold data from credit bureaus to prevent competitors from stealing their customers. The practice is especially devastating to those trying to improve poor or nonexistent credit histories, because no one else besides the company will know about their on-time payments and new credit lines. The practice can be expensive for consumers, because those with “sub-prime” credit histories tend to pay higher interest rates than people with better records.

One trade group that includes credit card giants Household International and Associates First Capital Corp. said Tuesday that its members had promised to stop the information blackout and would provide credit bureaus with more complete data. But banking regulators are concerned that the practice is still too widespread and could threaten lenders that rely on incomplete credit reports.

* Expensive insurance. Most credit card companies try to sell insurance that will pay off the card in case of death or disability. A relatively new twist is coverage that guarantees the outstanding balance on the card will be forgiven if the holder dies or can’t work. Financial experts agree that both products are far inferior to plain old term life insurance and should be used only by consumers who can’t get coverage any other way. Some consumers have complained in lawsuits that they were signed up for such coverage--which is extremely profitable for the credit card company--without their consent.

* Unsupervised workers. At some companies, you can still get a supervisor on the phone if you’re having trouble resolving a problem or if you want to get a fee waived or an interest rate lowered. At others, however, cost-cutting measures in customer service mean long waits on hold or telephone representatives who insist that no supervisors are available.

Laguna Beach resident Barbara A. Connor said she called her credit card company, First USA, at least a dozen times to check on the progress of a merchant charge that should have been taken off her bill. Each time, she said she was told that the telephone representative couldn’t help her and that no supervisors were on duty. Her card was credited within 24 hours after a reporter called the company’s public relations office to inquire about the problem.

* Cards that cost more than they’re worth. Some of the nation’s leading credit card companies are offering their best deals and lowest rates on the Internet rather than through expensive mass mailings. But some of the worst deals exist on the Internet as well. McKinley spotted one designed for borrowers with poor credit that had a credit limit of $100--and fees for applying that cost more than twice that.

* Fees, fees and more fees. Late fees, over-limit fees and cash-advance fees have all increased in recent years. Cash-advance fees are particularly steep; where once most issuers had limits on how much they would charge--2% of the amount with a $10 maximum was typical--now many charge 3% with no upper limit and with minimum fees of up to $50. Cash advance fees also can be much higher than the rate for balance transfers or purchases; American Express has a card with a 9.9% regular rate but a 19.99% rate for cash advances.

More credit card companies are also allowing customers to go over their credit limits and then slapping them with fees; in the past, the companies typically would have refused to approve any over-limit charges.

“It’s all part of the fee frenzy,” McKinley says. “You can get a good deal, but if you step out of line--whammo! You get whacked.”

Liz Pulliam Weston is a personal finance writer for The Times. In her Sunday column, she answers questions submitted--or inspired--by readers on a variety of financial issues. She regrets that she cannot respond personally to queries. Questions can be sent to liz.pulliam@latimes.com or to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.