Released: October 31, 2006

Credit card gobbledygook masks sleazy practices

Source: USA Today Editorial

Remember the last time you slogged through impenetrable proseor hunted for elusive asterisks in a credit card solicitation or agreement? And, after finding them, you still couldn’t figure out what the issuer was saying? Well, the problem isn’t you. It’s the disclosures. Banks could hardly make them more confusing.

A federal study released this month, looking at disclosures by four major card issuers, confirms that they are too complicated for many consumers to understand. Key information is scattered or buried. The print is too small. Issuers use complex phrases where simple ones would do. Take “rolling consecutive twelve billing cycle period.” English translation: “the next 12 months.”

Perhaps banks employ people who just can’t write. But such dense language also hides onerous credit card practices:

Penalty rates. More than 70% of 112 consumers surveyed by Congress’ Government Accountability Office (GAO) were unsure or didn’t believe that banks could raise a consumer’s interest rate because of a late payment on some other bill. But issuers can, and they do — some seeking to slap “penalty rates” of more than 32% on customers for a single slip.
That rate would violate usury laws in several states. But the credit card companies escape usury limits thanks to their political clout in Washington and by basing their operations in issuer-friendly states such as Delaware and South Dakota.

If customers want to reject the penalty rates, they have to notice the fine-print inserts in their bills and “opt out” by writing a letter to the bank. Issuers told the GAO that most customers don’t reject these rates. Little wonder when it’s so difficult.

Soaring fees. From 1995 to 2005, late fees rose more than 160%, to an average $33.64, the GAO reported. A majority of the consumers surveyed “exhibited confusion” over those fees. Nearly half couldn’t figure out from reading the cardholders agreement precisely what triggered the fee. In fact, for many issuers, it’s triggered if a payment doesn’t arrive at a specific “cut-off” time on the due date.

Interest calculations. Banks use different methods to calculate interest on balances, including “double-cycle billing,” which substantially hikes the interest a consumer pays. None of a dozen cardholders interviewed extensively in the study was able to describe it accurately.

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