If you are used to carrying a balance on your credit card,Guest Posting the two-cycle method results in greater finance charges to you, so this change should reduce your interest expenses. This is part of the credit card industry’s response to increasing pressure from flat rate credit card processing consumer groups and U.S. lawmakers for credit card issuers to stop what are called “predatory and abusive practices.”
Last March, Citigroup decided to remove two practices that have been objected to: the increase in a credit card holder’s interest rates and other fees, at the option of the bank, at any time for whatever reason, and the practice known in the industry as “universal default,” which means that if you fail to pay a bill to any of your creditors (say, a mortgage payment or a utility bill) the interest rates on your credit card are immediately increased.
Just recently, in the first week of June, Bank of America and Chase bared comprehensive programs to help customers better understand how the terms and conditions on your credit card account operate in order to enable you to manage your credit cards better. These moves are certainly meant to please holders of credit cards, although the skeptical would see them as moves designed to avert government crackdown.
In response to a swarm of complaints about credit card issuer’s practices, Congress has conducted hearings, and some bills have been introduced in the U.S. Senate and the U.S. House of Representatives, all aimed to stop perceived abuses. Realistically, however, other lawmakers are of the opinion that new laws through which to impose new rules on the credit card industry are not likely to pass this session. Some legislators believe new legislation is not the answer.
The realistic approach to reform may be the changes proposed by the Federal Reserve on credit card advertising, billing practices and updates. One serious proposal will be the first major revision on truth-in-lending guidelines in a quarter of a century. This rule requires of all lenders to give 45 days’ notice on any interest rate increases (the present practice is 15 days) – credit cards included.
The Christian Science Monitor reports that an advocacy group identifies the worst practices among credit card issuers as follows:
· Penalties for late payments or over-limit fees are immediately imposed, even in instances where payment to the credit card account is received just minutes after the specified cut-off time (usually 2 p.m.) on the due date.
· Interest rates on credit cards are raised for whatever reason, at any time the bank chooses to.
· Payments are applied to those balances on credit cards that are carrying the lower annual percentage rate (APR) and not to the highest. The problem arises from the fact that credit card holders use the same credit cards for purchases, cash advances, and to absorb the balances that have been transferred from other credit cards. These are distinct transactions involving distinct interest rates; for example, cash advances have high interest rates while transferred balances may have zero interest. Since payments made are applied to balances that have the lowest APR, those balances with higher rates continue earning interest and increase at a faster rate.
· Banks use the “trailing interest” method, which refers to interest charged on your outstanding balance between the cutoff date of the last statement and the date your payment is actually posted into your credit card account. This is particularly true for credit cards that don’t have grace periods.
· Absence of an upper limit on fees for balance-transfers by a number of credit card issuers. When you transfer balances from other credit cards, banks typically charge a fee (some waive it, though) of up to 3 percent of the amount transferred, but there used to be a cap of about $50 or $75. Without that cap, if you transfer, say, $5,000 you stand to pay $150 in transfer fees instead of $75 on your credit cards.