December 2009 - Posts - Dollar Stretcher Guest Bloggers
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December 2009 - Posts

  • New Credit Card Practices Costing Consumers Millions of Dollars

    by Bill Hardekopf

    A recent study by the Center for Responsible Lending gives new data to show that credit card issuers have instituted a number of "hidden" price changes since debate first began on credit card reform.

    The study entitled "Dodging Reform: As Some Credit Card Abuses are Outlawed, New Ones Proliferate" says that these practices have affected over 400 million credit card accounts. The study says that the CARD Act and other regulations have had some success in limiting the costly traps of yesterday and today, but issuers have found new ways to raise fees and revenue. It also shows how minor and almost unnoticed changes can make millions of dollars for issuers.

    Here are the practices that were examined in the study:

    • "Pick-A-Rate" pricing. This affects variable rate credit cards that are tied to the prime rate. Rather than having the interest rate on your credit card rise and fall based on fluctuations in the prime rate, some issuers are tying your variable rate to the highest prime rate published within a 90-day time period. Hence, increases in the prime rate would take place immediately but declines may not be instituted for several months. The study says this can result in APRs that are 0.3% higher than traditional pricing and that it is currently costing consumers $720 million annually. If the practice becomes standard among all issuers, the cost to consumers may reach $2.5 billion per year.

    • Variable rate floors prevent interest rates from going beneath the starting APR, but those interest rates can go up.

    • Changes in the minimum finance charge. If you have only a penny in finance charges, you can get charged a minimum amount of up to $2.

    • How balance amounts are categorized has led to much higher late fees. The study says that 9 in 10 consumers now pay the highest late fee due to this compression of balance categories.

    • More issuers are now instituting inactivity fees where consumers are charged a fee for not using their credit card account.

    • Growing use of fees by expanding the definition of international transactions and charging higher balance transfer/cash advance fees.

    None of these practices were included in the Federal Reserve 2008 rules or the CARD Act of 2009 but usage has grown since these regulations were passed. Expect more of this to come in 2010 because issuers will continue to find new ways to make additional revenue.

    Find the link to the study here.

    Bill Hardekopf is the CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

  • Tips for Buying and Using Gift Cards

    by Bill Hardekopf, CEO of LowCards.com

    We are entering the holiday gift card season. While new studies show gift cards are the most popular presents to give and receive, the hidden costs may outweigh the convenience of the gift. It is important for consumers to give and use these cards correctly.

    Gift cards are easy to give, but they are also easy to forget. If the card has a monthly fee or expiration date, these can become costly little pieces of plastic. Even though gift cards take the hassle out of holiday shopping, you want to use them wisely. It is important to know the terms of the card you are buying.

    Holiday gift cards are a big business. According to the National Retailers Federation (NRF), sales of gift cards reached almost $25 billion in 2008. A new NRF study shows that 55.2% of adults are hoping to receive a gift card this year.

    However, many households still have unused gift cards from the last holiday season. According to a new Consumer Reports survey, 25% of adults that received a gift card in 2008 have yet to redeem at least one of the cards.

    This is the time to check your wallets, purses and drawers for gift cards that you received last year and use them immediately. Some cards may start charging a monthly fee after twelve months, which drains away the value of the card. You can even use them to start your holiday shopping.

    Here are some consumer tips for buying gift cards:

    • Buy a card only from a merchant you trust.
    • Make sure the store is in a good financial position.
    • Ask about the fees and expiration dates of the card. Read the card's fine print.

    Here are tips for using gift cards:

    • If you receive a gift card, use it as soon as possible. Don't put it aside and out of sight. Use it before you lose it or forget about it.

    • Check the terms and conditions of the card you receive. Look for an expiration date or any use fees.

    • Gift cards from major credit card networks can be used at any retailer that accepts their credit and debit cards.

    • If the gift card is from a credit card network, write down the card number. If it is lost or stolen, the card can be cancelled and a replacement issued. The replacement fees range from $5.95 to $12. Most store cards can't be replaced if they are lost or stolen. They are treated as cash.

    • Keep the card, even after the balance is depleted, until you are sure you won't be returning any of the items that you purchased with it. The retailer may require the card with the return.

    • If there is a problem with the card, contact the store or financial institution that issued the card. If that doesn't resolve the issue, contact the Federal Trade Commission at 877-FTC-HELP.

    There are important differences between store cards and general purpose cards. Store gift cards are limited to that retailer or family of stores and many have no fees or expiration date. Not all store cards can be used online.

    General purpose cards are from Visa, MasterCard, and American Express. They can be used any place these cards are accepted. The purchase fee ranges between $2 and $7. Many cards charge a monthly maintenance fee that is typically $2 or $2.50 and starts after six or twelve months.

    The CARD Act does provide gift card protections, but these provisions don't go into effect until August 2010. It prohibits gift cards from expiring before five years from the date of purchase or when money was loaded onto the card. It also prohibits fees for the first twelve months.

    What happens to unused gift cards? They can eventually revert back to the retailers as income. Some states can even claim unused gift cards as abandoned property.

    If you have unused gift cards that you won't use, you can donate the card to GiftCardGiver.com; that site will distribute the card to non-profit agencies that can use the card to help others.

    Bill Hardekopf is the CEO of LowCards.com, a site dedicated to simplifying the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet, which allows consumers to compare rates for all 1060 credit cards offered in this country.

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