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Senators tackling credit-card practices

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Russ Wiles

The Arizona Republic

It seems like everyone has a credit card these days or wants one. Arizonans, for example, hold 3.5 cards on average, reports credit-bureau Experian, and one in seven of us is using at least half of our available credit.

But as a U.S. Senate hearing this week shows, card usage can be costly for consumers. Banks and other lenders tack on fees and pursue other policies that can make card ownership a burden. Some senators are threatening new regulations if banks don't curb practices they call predatory.

Phoenix resident Ashley Engler learned the hard way about some of those practices. As a college student, she often relied on credit cards to make ends meet and sometimes incurred late fees and missed-payment fees in addition to generally high interest rates.

"I didn't realize the importance of paying those things off," said Engler, 30, who works in public relations. "It spiraled out of control, and it took a long time to pay off those cards."

Arizonans on average carried a credit-card balance of $4,406 last year, slightly above the U.S. average of $4,270, researcher Claritas reports.

One bit of good news is annual fees on credit cards aren't as common as they used to be, said Greg McBride, a senior financial analyst at Bankrate.com in North Palm Beach, Fla. But other practices have been going against consumers, including the following:

• Universal default. Even if you have a card with a fixed interest rate, it doesn't mean that rate is locked in stone.

"Fixed-rate credit cards don't work quite like fixed-rate mortgages," McBride said.

Simply put, many card companies still boost rates for various reasons, and one key trigger is when they learn you've missed a payment to another creditor, merchant or utility, even if you continue to make your card payments on time.

"Card companies find out because they pull credit reports often, especially for high-risk borrowers," said Debi Kuehn of Kuehn Financial Education Services in Glendale.

Citigroup, the nation's biggest card issuer, recently said it would end its universal-default policy, the type of voluntary restraint lawmakers seek. Yet the practice remains common.

• Double-cycle billing. This is a tactic under which card companies might wipe out the interest-free grace period if you can't pay your balance in full. Specifically, it occurs when you go from paying the balance off each month to carrying one.

Suppose you made a big purchase in January that you couldn't pay off in February. By the time your March bill rolled around, the card company would charge interest on the January purchase for two months. "It essentially wipes out the grace period," McBride said. "You're basically paying interest retroactively."

Although this is a one-time interest shock, the dollars can add up for people with balances of several thousand dollars, Kuehn said.

• Miscellaneous fees. People who don't pay their credit-card bills by the due date often incur fees ranging from $15 to $39, McBride said. Paying late also can trigger a higher interest rate under a universal-default provision, as noted above.

In addition, McBride cites fees of perhaps $15 to pay by telephone. These charges typically are incurred by people who realize they haven't paid their bills and don't have time to mail them, with the due date just a day or two away.

One way to avoid this is by paying over the Internet.

• Other interest-rate hikes. Card companies sometimes raise supposedly fixed rates for various reasons, such as in response to broad economic and market conditions. Lawmakers hope to see card companies put the brakes on such whimsical moves.

"They should only be raising rates because an individual has done something wrong, not because of market conditions," Kuehn said.

Card issuers typically can change their rates for any reason with 15 days of notice, McBride said.

Citigroup pledged to stop hiking rates "any time for any reason" while a card is active, although new rates could be implemented once a card expires and is reissued.

Engler's card errors didn't prevent her and her husband from later buying a home, but today, the couple are careful to monitor their credit behavior.

"We realize now those things will affect us for the long haul," she said.

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Credit cards are such a rip off. I see some that charge up to 24%. Unfortunately they have become ingrained into our culture.


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credit cards sux...we got one for sanita for her credit hisotry and keep it at $200


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My HUsband's Citigroup card has a 32% interest rate because he has had a couple of late payments and a couple of over the limits (not by much either).

ABout time someone took care of this problem. The UK did the same and actually made credit card companies pay back to people a percentage of the extortioate late fees etc. They made the banks do the same thing.

Interesting article about what the UK did in this respect...

http://www.thisismoney.co.uk/credit-and-lo...mp;in_page_id=9


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