1. Cutting Cardholder's Credit Limit
The Issue
Credit card companies have been slashing borrower’s credit limits in an effort to contain their rising default rates. In some cases, to below the borrower’s outstanding balance. The higher one’s credit score, the more likely it is that they are using a small portion of their available credit, which means their score will suffer less if the limit on one or more of their cards is lowered.
Impact on Cardholders
Reducing one’s limit close to or below the outstanding balance may not only trigger an over-limit fee, but it can also hurt the cardholder’s credit score. This happens because the credit utilization ratio, or the amount of credit used relative to the available limit, determines 30% of your credit score.The Fix Under the new Federal rules, issuers have to give forty-five (45) days notice if the reduction brings the cardholder close to their outstanding balance.
2. Raising Interest Rates Even for the Best Customers
The Issue
The Feds may have brought short-term interest rates to 0%, but credit card issuers have been lifting interest rates across the board.
Impact on Cardholders
Borrowers will take longer to pay off debts, and will pay more interest as they do so.
The Fix
The Fed rules prohibit banks from increasing rates in the first year after opening a credit card account. Afterward, a forty-five (45) day notice is required.
3. Penalty APRs as High as 32%
The Issue
Even the most responsible credit card users could be hit with a 30% or higher penalty rule if they pay a day late or exceed their limit by $1.00.
Impact on Credit Cardholder
Consumers end up paying high interest on past purchases.
The Fix
The Fed prohibits such rate increases, except when a payment is more than 30 days late.
4. Banks Require Consumer Pay Down Low Rate Balances Before High-Rate Debt
The Issue
Issuers apply consumer payments to low-rate balances while their high-rate balances keep growing.
Impact on Credit Cardholder
Anyone who takes advantage of a low-rate promotion, such as a 0% APR balance transfer, will pay more than 0% if they use the same card for purchases at a regular rate.
The Fix
The Fed rules require payments exceeding the minimum to be allocated to highest rate balance, or to all balances on a pro-rated basis.
5. Closing Cardholder Accounts
The Issue
In an effort to limit their risk exposure, banks have been closing unused credit cards.
Impact on Cardholder
Closing an unused credit card can lower your credit score since it lowers your available credit and increases your credit utilization ratio.
The Fix
The Fed rules and proposed bills are being addressed on this issue.
6. Cutting Back Rewards
The Issue
Some credit card issuers have been quietly slipping in expiration dates for reward points, cutting back promotional programs and asking cardholders to spend more points or miles for free flights.
Impact on Cardholder
It may do no monetary harm, but it is unfair to consumers who may favor one card over another because of its reward programs or other incentives.
The Fix
The Fed doesn’t address reward programs.
7. Shrinking Grace Periods
The Issue
Grace periods, the time between the statement closing date and the date by which cardholders may pay to avoid interest charges, have been shrinking, from an average 25 days in 1995, to 22.5 days in 2008.
Impact on Cardholder
By the time they receive their statement, cardholders may have just days to mail a payment or risk being hit with late fees or penalty rates.
The Fix
The Fed rules require that banks send statements at least twenty-one (21) days before the payment due date.
8. Getting Students Hooked on Debt
The Issue
At college campuses, card issuers are practically pushing credit cards in student’s wallets, making credit seem easy for those already facing the burden of student loans.
Impact on Cardholder
Debt levels have increased among college seniors.
The Fix
Legislators are passing bills that prohibit credit card companies from issuing cards to people under age 21, unless they complete a certified financial literacy course.