As I read Bank of America's new credit card changes,
Elizabeth Barret Browning's famous poem immediately came to mind with slight changes. It's not good for a business when customers believe they are being screwed by them. But with fewer options that are mostly the same and Wall Street's pressure for short term profits, businesses are getting meaner.
There are lots of reasons people use credit cards. It's hard to make airline reservations without a credit card, and if you do, you have to pay more. It's almost impossible to rent a car without a credit card. And credit cards make it possible to spend what you don't have.
Banks issuing the cards are not shy about squeezing their customers for all they can get. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 made some changes. The
Consumer Finance Protection Bureau summarizes the key changes:
- The long-standing practice of hiking interest rates on existing cardholder accounts has been dramatically curtailed.
- The amount of late fees consumers are paying has been substantially reduced.
- Overlimit fees have virtually disappeared in the credit card industry.
- Consumers report that their credit card costs are clearer, but significant confusion remains.
(
Wikipedia notes that an amendment to the bill allowed people to carry firearms in National Parks.)
So the companies are trying to find ways to increase earnings while being in compliance with the Credit Card Act.
Here are some highlights of the changes listed in a letter I got recently. Some of the most disturbing are at the end.
"Amendment To Your Credit Card Agreement:
Effective Decembr 3, 2013, the transaction fee we assess on each of the transactions identified below will be equal to 5% of each such transaction (Fee: Min. $10):
- ATM Cash Advance
- Cash Equivalents
- Over the Counter Cash Advance
- Same-Day Online Cash Advance
- Wire Transfer Purchase"
As I understand this, if you get a $10 cash advance using your card, you'll have to pay a $10 fee which is a 100% fee. The percentage goes down as you get a larger amount. But the fee doesn't get down to the minimum percentage (5%) until you take $200. And then you'll pay more in interest. I guess because they call this a 'transaction' fee, it doesn't count as usurious interest. (
In Alaska that's 10.5% for loans above $25K)
But, there's this option:
"If you reject this change, it will not apply to your account;"
Hey, that's cool, but only if you stop there. The rest of the sentence is:
"however, your account will be closed as of the date we process your rejection."
And, it goes on, you will still have to pay off what you owe us.
TOTAL MINIMUM PAYMENT DUE
"The Total Minimum Payment Due is the sum of all past due amounts plus the Current Payment.
The Current Payment for each billing cycle includes three amounts:
- 1.00% of your balance (your New Balance Total except for any new interest charges and any new Late Fee)
- new interest charges
- any new Late Fee
Your Current Payment will not be less than $25."
Not less than $25? What if you you only used the credit card for $10? It does say next that:
"The Total Minimum Payment Due will not be greater than your New Balance Total"
What am I missing here? How can Current Payment
not be less than $25? If your New Balance total is $0, and you have no interest charges or late fees, why would you still owe $25? Does it mean that if you owe less than $25 they won't bill you? I doubt it. I suspect they meant, "if your current balance is at least $25." But maybe I'm just missing something, but if I am, I'm sure others are too.
The next updates, they say, are language changes. They say they:
"are updating the language in the following sections to clarify how payments are applied:" See how clear you think it is.
I'm just going to offer some of the highlights:
"Interest will continue to accrue even though you have paid the full amount of any related balances because we include any accrued but unpaid interest in the calculation of each Balance Subject to Interest Rate"
Here's what I think this means: Once you don't pay the full amount, we stick you with interest rates (and late fees). Those accrue daily. So, when we send out your bill, we only give you the amount due at that moment. But after we send it out, you are still accruing interest until you pay us. But we won't tell you that on the bill. So you think you are finally square with us, but you are still accruing interest on everything. Ha Ha, good trick isn't it? Gotcha.
One way to deal with this is to call them up and tell them you want to pay off everything and stop the interest from continuing to accrue. You may be able to pay by phone or go to the bank branch. If you're a long time card holder they may simply waive it. Or you can ask them how much more will accrue until you can get the money to them and add that to your payment. But don't use your card for new transactions until it's definitely all paid off, because interest will accrue on every transaction each day.
The Killer Clause
"We will not charge you any interest on Purchases if you always pay your entire New Balance Total by the Payment Due Date. Specifically, you will not pay interest for an entire billing cycle on Purchases if you Paid in Full the two previous New Balance Totals on your account by their respective Payment Due Dates; otherwise each Purchase begins to accrue interest on its transaction date or the first day of the billing cycle, which date is later."
"if you
always pay your entire New Balance Total by the Payment Due Date." This really is the only reason for which people should use credit cards if they want to keep out of permanent, ever increasing debt.
Otherwise, they start charging you nasty interest rates that can double and triple what you actually pay for everything you charge.
And I didn't realize that you have to pay in full for
TWO PREVIOUS NEW BALANCE TOTALS. This is designed to keep people paying interest as long as possible.
HOW WE ALLOCATE YOUR PAYMENTS
"If your account has balances with different APRs, we will allocate the amount of your payment equal to the Total Minimum Payment Due to the lowest APR balances first. Payment amounts in excess of your Total Minimum Payment Due will be applied to balances with higher APRS before balances with lower APRs."
If they define APR anywhere in this letter, I can't find it. But I think it means Annual Percentage Rate. What they seem to be saying is:
If you have account balances with different interest rates and you only pay the Minimum Payment Due, they'll use that to pay the account with the lowest interest rate first. (Even if the other debts are older.) That way they can still stick you for the higher interest rate longer. But it appears they give you something - if you pay
over the Minimum Payment Due, that amount will go to the higher interest accounts first.
I'm not sure why they are making that concession, but it would seem to mean that poorer folks, who can't afford to pay more than the minimum, will get stuck paying the higher rates longer.
USING MOBILE DEVICES
Basically, this part says that if you use your mobile device like a credit card, then when you give your phone to someone else it's like giving them your credit card. And you're stuck with their bill.
And they are updating their language about
PEOPLE USING YOUR ACCOUNT
This transfers all responsibility to the card holder. If you give someone your credit card or phone with credit card capabilities, you are liable for whatever they do with it.
"even if the amount of those transactions causes a credit line to be exceeded"
"We may send account materials (cards, statements and notices) to any liable party, and that person will be responsible for delivering those materials to the other liable parties and authorized uses. Notice to any of you will be considered notice to all of you."
So, you have a limit on your card. Doesn't seem to matter. What's the point of the limit?
You let your college son on your account? They could send him the bills and that counts as sending them to you. If he doesn't pay them or send them to you, you're screwed.
And get this one:
"An authorized user's authority will continue until you both notify us that you are terminating the authority and you physically retrieve the card or other credit device."
So your spouse has walked out and is spending on your joint card. You both have to terminate his or her authority and you have to retrieve the card? Good luck with that.
What if you leave the house because your spouses is beating you?
I can't believe that in these situations you couldn't simply terminate the card, which I assume is different from terminating the other person's authority. But that has its own problems. What if your abusive spouse terminates the card when you've gone to a shelter?
I can understand that the Bank doesn't want to have to settle marital disputes, but this could have serious consequences for card holders.
And I doubt that many people read this far, even though it is only page 3.
And why are they making these changes?
"We are making the changes to the Transaction Fees and Total Minimum Payment Due sections because of a change in our business practice."
That clarifies things.
The basic rules for people with credit cards:
- Don't use one unless you plan to pay it off in full every month so you don't accrue interest.
- It's a way to not carry cash
- It's NOT a way to pay for something you can't afford
There are exceptions - unique situations where you have a short term need for extra cash and you have money coming in soon to pay it all off. I've heard of any number of film makers saying they paid for their film by getting lots of credit cards. If you can find cards with a year of 0%, you can pull this off. But I'm not sure how many of those film makers had a way to pay it off.
Basically, we have to wean ourselves from spending more than we earn.
Russian Turns Tables On Bank
Looking for this agreement online, I did find
this story of a Russian who simply crossed out the parts of the credit card offer he got and wrote in his own language - which included things like no interest, no fees, and no credit limits. He also wrote in penalties for the bank if they broke any of the rules.
The bank failed to notice the adjustments to the contract and issued him a card and eventually went after him for failing to pay fees and interest. He won that case in court, but the bank is now suing him for fraud and he's counter suing for all the penalties his contract requires the bank to pay.
