Double Secret Fine Print

One of the most insidious and evil industries in this country is the Credit Card industry. For years Visa^©, Mastercard^©, American Express^© and others have made "money" so easy and so cool - it was like taking a swim in a pool of endless of Andrews Jacksons and Benjamin Franklins while holding your martini. But exactly what kind of dive has the public taken? A swan dive - NOPE. It is a belly flop into an inch of water - when you come out, it hurts.

As of the beginning of 2008, the total outstanding US credit card debt stood at over $1 trillion dollars. That is what consumers owe on their personal credit cards. You think the banks are in trouble for bad mortgages - wait till the credit card debt mountain implodes. It is already starting. While more and more people are standing on the unemployment line, I am sure Visa^©, Mastercard^©, American Express^© and others will be standing on line for the Paulson's Pennies very soon. [note: Amex changed the status of their company to a bank holding company and is already on line at the Uncle Sam teller]. Bankruptcy for those under that mountain of debt is not an option anymore. The credit card industry's lobbying of Congress (notably Joe Biden) took care of that escape route.

What is a credit card?

A credit card is basically a line of credit issued by a bank allowing the consumer to borrow money for purchases. When you secure a credit card - you have made a legal contract with a bank or other lending institution that you will repay the money - on the terms stipulated in the contract. Credit cards are unsecured "revolving loans" meaning the borrower (or card holder) is allowed to carry a balance and pay interest on it - and there is no collateral. A charge card (like Amex) is slightly different - it requires the consumer to pay their balance in full at some set time. Credit cards are a convenient and easy way to pay for purchases without having to carry a lot of cash. They are also protected if lost and are accepted pretty much all over the world. Most credit cards have a limit to the amount you can charge - and almost all credit cards have fine print contracts that NO ONE reads, understands or follows.

The lack of regulation, oversight and transparency of the credit card industry has made these little plastic cards the kiss of death for millions of American consumers. They are overused, misused, abused and very misunderstood. In recent years the use of credit cards has put many people in a downward debt spiral they can or may never get out of. As laws and regulations have been relaxed, the credit card companies -- while enticing the public with offers of cheap money - have made the terms incredibly complicated and repayment nearly impossible. Once you enter the world of credit cards - you are like a hamster in a wheel - you never get anywhere and you never get out. They are built to trap you in.

What are some of the games Credit Card companies play?

So glad you asked, because you are not going to believe it. Read them and weep. Of course by law these 'rules' are all spelled out in the fine print that no one reads or understands. Yes we are all responsible for reading the terms - but the language is often jumbled, confusing and full of legalese. Just so you understand the depth of this game - Credit Card companies took in over $12 billion in fees and charges in 2005. Since so many people have been living off their cards in the last year - I would bet that fee amount is significantly higher in 2008.

A. Many times the contract of the credit card stipulates that the terms "can change at any time, for any reason." So why bother even having a contract or set regulations?

B. Card issuers can increase your interest rate if you the card holder makes a late payments to a completely different party (like your car loan or mortgage). This is called universal default.

C. Interest rate changes can be applied not only to new purchases, but to all outstanding balances as well. Some states only have to give you 14 days warning they are increasing your rate.

D. If you make a late payment there are usually penalty fees in addition to interest rate increases that can occur. These fees can vary and change - almost without warning. Some companies will call a payment late if they receive or open the remittance envelope after the due date - not when the remittance was post-marked (like the IRS requires - post marked). Some issuers have changed their billing period to less than 30 days!

E. There is a penalty fee for going over your credit limit - and in some states the card company doesn't have to warn you that you are near your limit - they can tell you after the fact and just tack on the charge you when you go over. Get this - if your late fee puts you over the limit - you also pay the going over the limit fee and are subject to interest rate increases.

F. All the fees (penalty, annual usage etc.) that are tacked onto your statement accrue interest as well!

G. There is no control/regulation over the mailing of statements. They can be mailed very close to due date.

H. Some states allow the due date to actually have a specific time like March 16th at 2PM. Pay at 3PM - there is a late fee and your interest rate can go up.

I. Some issuers charge for online payments, some for payments received on the due date. There are annual fees on cards, fees for phone payments. Some banks charge an "inactivity fee" if you haven't used your card but have not closed the account. There are fees for international currency conversion, international ATMs and travelers cheques. Get this -- closing a credit card, even one you never use - can actually hurt or damage your credit rating or FICO score.

J. Credit card companies lure people with 0% interest on transfered balances. When the consumer starts payment to the new card, all the remittance goes toward to the old transferred balances first, the new charges will just rack up interest at the new card rate - there is no prorating of the remittance.

K. Double cycle billing. This is one of the worst games the banks play - If you charge $2000 in one month, and pay off $700 when the bill comes due - you would think your next bill would have an interest charge only on the $1300 balance. NOPE - double cycling considers not only the current balance, but the average daily balance from the previous period, giving the bank a higher figure to calculate your interest. So in essence you are paying interest on the $700 you paid off on time.

L. Credit card companies in some states (notably Delaware and South Dakota, but others as well) can charge virtually ANY interest rate. Some of these rates are called "fees." Did you ever get checks mailed to you from your credit card company, calling them 'overdraft protectgion' - I do all the time. Shred them immediately. If you use this "additional line" - there is a charge for just using the overdraft, then there is a daily charge that keeps getting tagged on until you pay the balance off, as well as interest payments. A $50 charge on the overdraft could cost over $200 if you keep it open for 3 weeks!

M. Payday lending - if you need money, you write a post dated personal check as an advance on your paycheck. You get the cash, minus a fee. The lender holds the check until your next payday, usually one or two weeks. When you paycheck comes in, you redeem the check (for the full amount, including the fee) or renewing the loan ("flipping it") with another fee tacked on. Example: If you write a check for $460, you get $400 ($60 fee) - if you don't flip the loan, your net APR is 390%! Some places charge $25 fee per $100 for the check - a net APR of 650%. Flip the loan, and it gets worse.

N. Cash advances on credit cards - the worst. There is a fee on the withdrawal (say 3%), plus interest (up to 24%) starts to accrue immediately (unlike purchases which have a 30 day grace period). For a $1000 advance on Feb 1 - you will owe over $1050 at the end of the Feb - the fee also is charged interest.

Yes personal responsibility is critical and required. Know what you can afford and what the terms are. But the credit card companies are just another component in the greed that has overrun America. Sure they will tell Congress they need these fees to pay for the deadbeats - but their own marketing, terms and structure ends ups making deadbeats out of people who have no intention of being deadbeats. They lure you in and then bleed you dry in a mountain of mystery. Their own greed is also destroying the hands that feed them (just like so many industries in this country).

Bottom line - credit cards are really a fool's game. If you don't have to use them - don't. If you do - pay off the full amount each month. Pay on time and always always always NEGOTIATE and THREATEN to leave for another card. Do not let these companies push you around.