Credit Card Upheaval: Time for You to Wake Up and Take Charge

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Whether you’ve got one credit card in your wallet or 13, whether you carry a balance or always pay your full bill on time, big changes happening to the way banks and credit card companies do business will affect you. What can you do? At the very least, you really ought to take a few seconds to read notifications from your credit card issuer that come in the mail, rather than automatically tossing them into the trash.

A recent study revealed that virtually all of cards issued by the biggest U.S. banks engage in “unfair and deceptive” practices. The much-heralded credit card reform that the government is in the process of putting into action is intended to limit the abuses. But, while the new legislation will give some protection to consumers, the credit card issuers are doing what they can to counteract the protective measures. There’s a ugly little back-and-forth dance going on.

Fees are being added regularly, even ones for people who pay bills on time. Interest rates have skyrocketed—so much so that some members of Congress are suggesting that fees and rates be frozen until the rest of the current credit card legislation is put into effect.

What all of this adds up to—action, counteraction, action, counteraction—is that, more so than ever, consumers must be mindful of what credit cards they use. One of the new law’s few tangible takeaways is that the banks and credit card issuers must be a heckuvalot better than they’ve been in the past at actually notifying customers about changes in their accounts. Credit card reform won’t really protect you from loan shark-like terms. Reform will, however, force the card companies to be more upfront with customers about those loan shark-like terms. So … it behooves you to actually read the darn notifications.

A Washington Post story lists a few of the things you could be reading about:

When you open that mail, you may discover that your interest rates are rising, or switching from fixed to variable. In addition, some card issuers are instituting higher balance-transfer fees and raising teaser rates — or eliminating them all together. The warnings come courtesy of sweeping reforms required by a law enacted this spring that is being phased in over the next year.

The rate changes are not subtle, either:

A study by the Pew Charitable Trusts released last month found that advertised rates on about 400 credit cards this summer had jumped as much as 23 percent. In addition, the study reported that many issuers were shifting customers from fixed to variable rates, which would ease some of the notification requirements.

“It’s difficult to say why this is happening,” said Nick Bourke, manager of the Safe Credit Cards Project at Pew. “I think it’s clear that issuers are responding to the continued difficult economic times. . . . I think it’s also possible that the timing has something to do with getting these changes into place before the new law takes effect.”

Oddly enough, there’s one rather large account change that you might get no notice about whatsoever. Reports have surfaced about people’s accounts being summarily closed without notice or reason. People just swipe their cards, scratch their heads, and later, after they’ve called up the card issuer, discover that they’re no longer in business together. Many of the people with canceled accounts are in good standing, and have no clue why they’ve been kicked to the curb.

From a Baltimore Sun story:

“Apparently, the closure of a card is not considered a material change in the terms,” said John Ulzheimer, president of consumer education at Credit.com. “I can’t believe I’m telling you this with a straight face.” Canceling cards and cutting credit limits without notice has been a practice of long standing. Card issuers say that if they warned consumers about a looming cancellation, customers would run up their balances before they lost credit and card issuers would be on the hook for even more money.

For many obvious reasons (30% APRs, cancelled accounts), consumers should really be reevaluating over the coming months what cards they use and how they use them. There was a time when many consumers didn’t have to think much about their plastic. It was there in your wallet, it worked, and you used it, simple as that. But because so many changes have occurred—and will continue to occur, as banks continue to strategize and competition heats up for consumers eager to trade cards—those days are gone. Now, if you snooze and don’t read the letters from your credit card company, you wind up months later staring at your credit card bill, wondering why you’re suddenly stuck with a $99 annual fee for a card that never used to have one.

Speaking of canceling cards, before you go ahead and make any switch, check out the WSJ’s checklist. For one thing, you really should simply call up your card’s customer service line before slicing your card into pieces:

If your card company has raised your interest rate, cut your credit line or added an annual fee, call the company before you cancel the card. Ask why the change was made and what it would take to reverse it. In some cases, transferring another balance to the card or using the card more often might result in a lower rate. And if you have other accounts or investments with the issuer, make sure they know all your business is at risk. Highlight your on-time payment record and your history with the company. If the representative isn’t helpful, ask for a customer-retention specialist.

Be honest, but be careful. Don’t empty out your anxiety closet. Credit-card customer-service representatives may start quizzing you to determine if your job status or worries about other bills will make you a higher credit risk.

Also, it’s best to have another card lined up and ready to go before you cancel. You know, a card you’re actually comfortable using. Read that fine print thoroughly before filling out those forms for your new card. Otherwise, there’s a strong likelihood you’ll end up with a new card that has even worse terms than the old one.

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