WTOL.com, Toledo's News Leader, News 11 | Credit Trap: Ways your credit card may lure you into debt
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Posted by Lisa Strawbridge - email
TOLEDO, Ohio (WTOL) - When Congress passed the Credit Card Holder's Bill of Rights this year, it was the first major overhaul of the industry in two decades. However, some politicians who voted for the bill say it didn't go far enough.
Rep. Marcy Kaptur, who voted to pass the bill, says the new law is insufficient to deal with what's going on in the credit sector.
Issues that the bill of rights addresses include raising a cardholder's interest rate and changing the billing date to try and catch the cardholder with a late fee.
Many cardholders don't even read the fine print when getting a credit card. In that fine print are the strategies credit card companies are using to spring the debt trap.
One example is lowering the minimum payment, which makes it easier for card holders to pay the monthly bill, but takes longer to pay off the total debt. If a card holder has $5,000 of credit card debt, it would take 26 years to pay it off with minimum payments.
Another example is the cap on interest rates. The highest interest rate a credit card company can charge is 36 percent. There are no federal laws limiting interest. Many credit card companies operate out of states with almost no usury laws, which limit interest rates.
It's not just the limit of an interest rate, but how a company can change the rate on an existing card. Credit card companies can change the interest rate for new purchases anytime they want for any reason. With the bill of rights, the companies can still change the rate on new purchases, but they have to warn card holders the change is coming and give a chance to opt out.
Another trap has to do with the rewards programs. Critics say the programs are to entice card holders to use the cards for everyday purchases, which often results in monthly debt.
The last issue is the lack of options when a dispute arises with a credit card company. Before the bill of rights, companies often used an arbitration compnay. Congress caught on that consumers almost always lost. Additional investigating revealed the arbitration companies were actually linked in some way to the credit card company, such as subsidiary or sister companies.
There are not-for-profit groups that can help cardholders re-negotiate existing cardholder contracts. Consumer Credit Counseling can help you renegotiate a contract, so the cards aren't always stacked on their side.
"We rewrite that contract. We lower the interest rates. We stop the late fees. We stop the double-dipping fees," said Marcia O' Connor with Consumer Credit Counseling.
Some card holders have decided to get rid of credit cards altogether. Lee Fought said, "Actually, what I did was cut up my credit cards when I retired and went to a debit card. That way, it's my money and I know what's going on."
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