4 New Ways Creditors Can Gouge You

Stay ahead in the credit-card game. ÖThis article details what creditors can and can­t do as well as the new maneuvers they have come up with to take more out of your wallet.

Credit-card companies are up to new tricks. ÖHere are some of the major trends: new hidden costs, more and bigger fees, wider use of penalty interest rates.

You may be at particular risk if you have bad or spotty credit. Creditors have started to focus on and penalize people who might default, i.e. not pay them back. The reasoning behind this? -- Credit-card delinquency rates jumped 30% within the last 10 years and bankruptcy filings remain near all-time high levels. ÖWhy would credit card companies penalize people who are the verge of delinquency? ÖSimple, to make money.

And for those of you with good credit -- don't think that just because you may have good credit that you are on the clear. ÖMany people are also penalized for simply not paying attention. So here­s what you need to know.

Old debts come back to life
Susan Dalton of NYC was happy to get a low-rate offer from Capital One a while back. Her credit wasn­t very good -- mainly thanks to the $1,500 of credit-card bills she failed to pay to her previous credit-card company, Chase Manhattan Bank. ÖShe was hoping to rebuild her credit with a new credit card.

Imagine her surprise then, when that $1,500 debt showed up on her new credit card.

Dalton insists she didn­t know she was ²reaffirming,Ó or agreeing to pay the old debt, when she signed up for the new card. Capital One is equally insistent that the deal was spelled out in the solicitation Dalton was sent.

²I­ve seen the solicitation, and it­s pretty clear,Ó a Capital One spokeswoman wrote.

When last contacted, Dalton and Capital One were still fighting over whether she would have to pay. ÖAccording to credit experts, buying old debts from another creditor and trying to entice borrowers to repay the debt with new terms has become increasingly common in the industry.

It­s perfectly legal as long as the credit-card company is upfront that with the new card comes an old debt, said lawyer Russell Ferrante, a noted credit expert.

²Simply transferring the old debt to a new credit card account without express authorization from the consumer could potentially violate a number of federal and state laws,Ó Ferrante said.

Old debts reported can be as new
Unscrupulous collection agencies will occasionally do this as a way of pressuring delinquent borrowers to repay. ÖHowever, it is worth noting that it is illegal. When collection agencies do this, they typically acquire or purchase debts that are about to be dropped from the borrowers­ credit reports under the Fair Credit Reporting Act­s seven-year statute of limitations. By reporting it with a new date, the debt could remain on the report for another seven years.

That­s what happened to Janice, a reader who asked that her last name not be used. Six years and 9 months after an unresolved dispute with her cable company first appeared on her credit report, a collection agency bought the debt and reposted it on her credit report with a new date, telling her it would continue to be reported unless she paid the $200 balance.

The Federal Trade Commission, which regulates credit bureaus, has made it clear this tactic isn­t allowed. Consumers facing this situation should demand the credit bureaus investigate and correct the erroneous entry. If the creditor refuses to back down and continues to report the old debt as new, the borrower can sue. Attorneys who represent such cases can be found through the National Association of Consumer Advocates.

Abrupt changes on longtime accounts
Another reader got hit with a late fee recently after sending in her monthly payment. After re-examining her statement, she noticed her grace period -- the time she had to pay her bill before interest charges and late fees applied -- had suddenly narrowed from 25 days to 20 .

Why? Credit-card companies are changing the rules. Many borrowers have discovered, for example, that there is no such thing as a ²fixedÓ rate. Just as with grace periods and other features, the rate on credit cards legally can be changed with just a few days­ notice.

Even the type of card you have is subject to change. Credit card companies are always on the look out for deals for themselves. ÖThat means that sometimes banks will switch all of their customers from MasterCard-branded plastic to Visa, or vice versa. ÖIt is likely that many of the terms change with this switch to a different credit card brand.

One reader whose Visa was replaced with a MasterCard discovered he was no longer allowed to view or pay his bill online. Now instead of paying as soon as the statement closed, he has to wait for the statement to arrive in the mail and pay by check -- a process that takes days longer and increases the interest he ultimately pays.

Important Note: It is required that your credit card issuer notify you of changes in advance. ÖKeep in mind that you do not have to accept the revisions or alterations, but you may have to give up the card to do so. In the fine-print brochure you get announcing the changes, a person is typically allowed to decline the new terms and pay off your account under the old terms. ÖThe catch? ÖYou are usually not allowed to keep using the card. ÖYes, reading the fine print is a pain, but we think it is worth checking, at least for new offers so you can stay informed.

Got spotty credit? ÖGet a really, really bad credit card deal today!
Well, the ads don­t actually say that, but that is what is going on. ÖToward the end of the 1990­s people with credit troubles found themselves among the most desired and sought-after customers in the credit-card industry.

The creditors decided they could make lots of money charging high interest rates to these risky customers. Credit became relatively easy to get for what are known as ²subprimeÓ borrowers (those with credit scores under 560 or so).

When the economy turned south and a recession hit, the inevitable happened soured. Credit card delinquency rates spiked, lenders realized they had taken took on too much risk regulators stepped in and the easy-credit offers dried up.

Now subprime borrowers who want credit are having a much tougher time getting it. Some lenders are taking advantage of the situation to promote some cards with truly terrible terms.

Not long ago, before regulators shut down the credit-card issuer, about 500,000 people signed up for the Net 1st MasterCard, a credit card that came with a $500 limit -- and $500 in fees. The only way it could be used to charge anything was if users paid down the original balance at a rate of at least $15 a month -- $8 of which was applied to an additional monthly fee.

Other card issuers have rushed out equally awful cards, said credit expert Steve Kline. One of them, AmeriOneCard MasterCard, required users to slowly build up a balance to be used in the future by sending in at least $15 a month -- while paying an $89.95 ²membership feeÓ and a $9.95 monthly fee. Ultimately, it would cost $428 in fees to build a $500 balance, Kline said. ÖThat doesn­t seem like a good deal to us.

Although subprime borrowers do have fewer choices these days, they don­t have to settle for such terrible deals, Kline said. Lenders do still offer secured cards with reasonable rates and fees. Note: a secured card requires you to deposit money into an account with a lender, and usually matches that deposit with an amount of available credit. ÖFor a list of good secured cards, you can visit Bankrate.com.

Here are some more ways you can reduce your chances of getting tricked:

• Read everything. Examine everything you receive in the mail from your credit-card company. Those brochures or slips of paper could tip you off to significant changes.


• Improve your credit standing. People with good credit tend to get the best deals -- and have the most leverage in getting their credit-card issuers to waive fees, change terms and otherwise alter deals in their favor. For tips on boosting your credit standing, visit our page: ²6 steps to building great credit."


• Pay off your debts. Not only will paying off your credit cards improve your credit score, but it will give your credit-card issuers fewer ways to sting you since you won­t be paying interest or over limit fees.



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