'It's Always Christmas' for Credit Card Companies

Just as the holiday season gets ready to kick into high gear, Consumers Union is warning shoppers about the increasing number of credit card traps that can trip up consumers and lead to spiraling debt. To help get out the message and mobilize support for reform, the group is releasing "It's Always Christmas Time (For VISA)," an animated satire that takes aim at abusive credit card fees and practices.

"You can find yourself buried in debt if you aren't careful to avoid the credit card gotchas," says Michelle Jun, staff attorney for Consumers Union. "Too many credit cards are designed to get you in debt and keep you there."

"It's Always Christmas Time (For VISA)" is a lighthearted take on the unexpected fees, interest rate hikes, and misleading contracts that are contributing to high credit card debt in the U.S. After viewing the animation, viewers can send an email to Congress asking lawmakers to support credit card reforms. To view the animation, click on http://www.CreditCardReform.org

Consumers enjoy few protections when it comes to credit cards and there are an increasing number of ways they can be penalized with fees or get stuck with higher interest rates:

-- Universal default: Your interest rate can skyrocket if your credit score declines because of your behavior with other creditors even if you always pay your credit card on time and never miss a payment. Some card issuers will raise your rate if you inquire about a car loan or open a new credit card.

-- Change of terms: Credit card terms keep changing. Read the fine print and chances are you'll find this disclosure: "We reserve the right to change the terms (including the APRs) at any time for any reason." A fixed rate is fixed until the bank gives you at least 15 days notice that it isn't. If you want to keep your account open, you'll pay the higher new rate on your existing balance.

-- Teaser rates: That low rate you signed up for expires suddenly and you end up paying more. A temptingly low introductory rate can climb to 30 percent or more.

-- Minimim payment: If you pay the minimum payment every month, you'll end up paying a lot more than what you charged and you could be on the hook for a very long time.

-- On time payment: Card issuers are systematically mailing statements closer to the due date, giving customers less turnaround time. You can be hit with a late fee even if the payment is mailed on time. The average fee for a late payment has more than doubled in the past decade.

-- Double cycle billing: Finance charges are usually calculated using the average daily balance. If you alternate between paying off and carrying a balance, you'll end up paying more interest.

-- Cash advance/convenience checks: The interest rates on these are higher than your credit card.

-- Penalty interest and fees: Late payments can raise your interest from 7 percent to 27 percent! Rather than rejecting charges that exceed your credit card limit, issuers today often let them go through but then charge a hefty fee -- as high as $39.

-- Fees, fees, and more fees: As if the penalties weren't enough, you pay more fees for paying by phone or charging abroad. You may have to pay a fee to receive what used to be free year- end summary statements.

-- Balance transfer switcheroo: Transferring a balance from an account with a high APR to another one with a lower interest rate could come at a high cost. Any payments you make are typically applied first to the lowest rate balance. So while the credit card company uses your payment to quickly pay off that 0 percent transfer balance, you are piling up interest on purchases, at say, 18 percent. Multiple balance transfers will hurt your credit score.

A recent report by the General Accounting Office (GAO) found that there are many types of credit card fees, and that they have risen much faster than inflation. It also finds that current fee disclosures are difficult to understand, bury important information, and often fail to convey to cardholders when late fees would be charged and what actions could result in penalty interest rates. The report found that 35 percent of active credit cardholders of the six largest issuers were charged at least one penalty fee in 2005, averaging $33.64.

Consumers Union is urging Congress to pass reforms to rein in abusive credit card practices, including banning universal default, stopping card issuers from applying punitive interest rates to the entire balance, and requiring better disclosure so consumers understand the true cost of making only the minimum payment.




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