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How Credit Cards Soak You
By DANIEL KADLEC
Posted Sunday, Oct. 15, 2006
After getting socked with a late fee and finance charge on my Kohl's account in May, I called to plead my case. How could a $45.08 pair of sneakers result in a $70.58 charge? O.K., I was two days late. Still, the $25 late fee and 50¢ finance charge came to a whopping annualized penalty rate of more than 21,000%. A local loan shark would have cut me a better deal. The Kohl's rep's response: "It's perfectly legal, and everybody does it."
Turns out she was right, and so began my education in just how much my credit cards were costing me. Without getting too personal, let's just say my inattention has had a price. Yours might too--especially if, like me, you have been carrying around the same cards for years and have not bothered to check the fine print lately.
Credit-card companies are constantly adjusting their rates, penalties and fees, and understanding all the ways they ding you requires ever more diligence. Disclosures now run 20 pages on average, up from one page a decade ago. And though late fees are hardly new, since the mid-'90s they have tripled, to about $30 on average--commonly going as high as $39. "Sure, they send you notification," says Adam Levin, founder of Credit.com a consumer-education website. "But your eyes just glaze over."
Meanwhile, new fees are sneaking in. Making a comeback is the balance-transfer fee (about 3%). If you transfer $10,000, you could get socked with a $300 charge.
Another addition is a fee for foreign-currency conversions. It has long been thought that the smartest way to purchase goods overseas is with a credit card because you'll get a fair deal switching from, say, dollars to euros. That may still be true. But many cards now tack a 3% conversion fee on top of the profit built into the conversion rate.
What's next? Card companies are weighing a fee for people who pay their balance every month, says Levin. Watch out for that one. Some companies already close accounts that are inactive, which can lower your credit rating. And if your credit rating falls, some card issuers will raise your interest rate to punitive levels--even if you are paying in a timely manner.
A yearly review of your credit cards is a good idea. First, check the annual percentage rate, or APR, which is your total cost of carrying a balance. If you're paying more than 14%, ask why. Look for recurring fees. You may have signed up for a card with no annual fee, but that doesn't mean one wasn't tacked on. There is also a fee (up to $39) for spending beyond your credit limit and one for paying by phone ($15). Penalty fees account for a third of the industry's revenue, twice the share it was 10 years ago.
How can you avoid penalties? Call the card issuer and ask to have them removed. If you are a good customer, the issuer may let you off the hook once or even twice. And when you get a bill, make the minimum payment immediately and another payment as soon as you are able. Managing your credit cards takes some effort; avoiding 21,000% interest is worth it. |
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Credit cards trap the unwary
Article from: Courier Mail
By Erica Thompson
June 25, 2007 12:00am
NO-FRILLS credit cards can be just as hazardous to your bank balance as more expensive options, a researcher says.
It only takes a few slips to turn a low-rate credit card into a "penalty-fee-devouring monster", Cannex, a leading researcher of retail financial information, says.
"Most of us get caught with credit card penalties on the odd occasion but consumers who regularly incur penalty fees due to household budget pressures are building their debt," Cannex analyst Harry Senlitonga says.
"Consumers think they are doing the responsible thing by getting a no-frills card but it can defeat the purpose entirely if the account is not managed correctly."
He says an interest rate of under 10 per cent balloons to about 22 per cent over a year if two late payment penalties of $25 each and two over-the-limit penalties of $35 each are incurred.
Given banks reaped an extra 21 per cent in penalty fees last year, it pays to find a card that won't punish you.
The most common fees are annual fees, one-off fees such as obtaining a secondary card, cash advances and foreign currency conversion fees. Annual fees range from zero to $1000, but most lenders charge $30-$40.
Then there's over-the-limit and late-payment fees to watch out for.
Only three of the 245 cards analysed by Cannex have no penalties if you go over the limit while the maximum penalty on other cards was as high as $40.
This also was the maximum for a late payment penalty, although nearly 100 of the cards analysed charge $15 or less.
The average over-the-limit credit card fee has increased from $18 to $31 or 73 per cent from 2001 to 2006, Cannex says. In that time late penalties have risen an average of 49 per cent.
Given fee income for banks has quadrupled between December 2001 and December last year, Cannex believes credit and charge card holders are being hit with higher penalties more often.
But don't despair.
It is possible to minimise fees and avoid penalties by being honest about your needs and knowing the rules.
Developments overseas are likely to concern Australian banks, Cannex believes.
In Britain banks have been forced to reduce their penalty charges on credit cards, and even refund customers, after late payment fees were found to be unfair. And in New Zealand, credit card companies are under investigation for unreasonable charges on late bill payments. |
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| Courts, Congress send mixed messages to debt collectors |
By Kenneth E. Rubinstein and Alexander G. Rheaume
Published: Friday, Jul. 20, 2007 Recent court opinions have created a stir in the collection industry by challenging debt collectors’ procedures for recovering money.
While nearly everyone agrees that debt collectors need strict regulation to prevent strong-arm tactics, the courts’ recent rulings have left many legitimate companies wondering how to comply with state and federal regulations.
Nearly 30 years ago, Congress passed the Fair Debt Collection Practices Act (FDCPA) to curb abusive collection practices and to provide a legal remedy for victims of those abuses. Unfortunately, FDCPA has not stayed current with the times, and courts have not clarified its language to reflect today’s technology. The resulting confusion has yielded a number of traps that leave ethical collectors exposed to heavy penalties.
FDCPA’s strict liability standard has created a cottage industry of “debtors’ rights” attorneys who seek to enforce the act’s stiff penalties for even trivial violations. These attorneys often threaten suit if they are not paid a quick settlement, knowing that the cost of defending FDCPA claims can easily reach $10,000 or more.
Moreover, if the debtor prevails, the act requires the collector to pay the debtor’s attorneys’ fees and costs, even if the fees exceed the amount of the plaintiff’s damages. In these instances, the debtors’ attorneys understand that the collectors’ legal costs in defending such actions would exceed the cost of a quick settlement.
Many collectors fall prey to lawsuits or threats based on ambiguities in FDCPA’s treatment of voice messages, which many professionals believe makes it impossible for a collector to leave a message without violating the law.
FDCPA allows collectors to make telephone calls to communicate with debtors, and it is generally understood that these calls help all parties as they allow debtors to work out payment plans (where possible) and to discuss the resolution of claims without the need for lawsuits, wage garnishments, foreclosures, or other legal process.
Update required
Unfortunately, recent decisions interpreting FDCPA call into question whether collectors can leave any voice message without opening themselves up to significant penalties.
For example, FDCPA requires collectors to identify themselves and to state that they are calling to collect a debt. Many courts have called this the “mini-Miranda warning.” The law also generally requires collectors to refrain from communicating with third parties about the debt.
While these requirements appear reasonable on the surface, they are incompatible when collectors encounter a debtor’s answering machine, as the collector may end up violating the act regardless of whether they leave the mini-Miranda.
Courts have consistently held that a collector who omits the warning violates FDCPA. At the same time, if the collector provides the mini-Miranda, he risks violating the FDCPA if the debtor’s spouse or some other third party overhears the message.
FDCPA was enacted in 1977, at a time when answering machines were not widely used and voice mail had not yet been invented. Unfortunately, those courts interpreting the act have not addressed these deficiencies in their decisions, and Congress has not yet updated the law. Many collectors have responded to this problem by refraining from leaving messages. While this tactic ensures that the collector will not leave improper messages, it also dramatically impedes communications and eliminates opportunities for agreement.
The Association of Credit and Collection Professionals, an agency representing the collections industry, recommends that its collectors utilize the mini-Miranda warning, but preface their messages by stating, “This is a call for [debtor’s name]. If you are not [debtor’s name], please hang up immediately.” Nonetheless, no court has approved the language, and a court could still find a collector liable if a third party continued to listen.
The risks of significant damages under FDCPA are very real. Without a clear path to avoid liability, debt collectors who leave voice mails may face lawsuits alleging significant damages for comparatively trivial debts.
For instance, one debtor tried to recover up to a half-million dollars from a debt collector who made repeated phone calls to the debtor trying to collect student loans. In another case, a debtor recovered several thousand dollars for emotional distress when a debt collector tried to recover less than $300.
As a result of the FDCPA’s ambiguity, many collectors are forcing their clients to make a choice regarding future collection methods. Businesses may choose between paying debt collectors higher costs (to offset FDCPA risks) for the continued efficiency of collections using voice messages or less effective, but safer, collection methods without the use of voice mail. In either event, until the proper method for leaving a collections voice message is clarified by either courts or Congress, the consumer ultimately loses.
Kenneth E. Rubinstein, an officer of Nelson, Kinder, Mosseau & Saturley, is chairman of the firm’s creditors’ rights group. Alexander G. Rheaume is an associate in the firm’s creditors’ rights group with experience litigating collection-related matters. |
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