Home > Credit Cards > Do You Still Have to Worry About Credit Card Gotchas?

Comments 0 Comments

Over-limit fees. Retroactive interest rate hikes. Floating due dates and missing bills. Not long ago, millions of credit card users found themselves in a constant arm-wrestling match with credit card issuers, fighting off surprise fees and booby-trapped agreements.

But times have changed. Complaints about late fees now make up only 4% of all credit card gripes in the Consumer Financial Protection Bureau’s complaint database. Other unexpected charges — balance transfer fees, cash advance fees, over-limit fees, and other fees — barely register with the agency.

Why the change? Many of these formerly frustrating card issuer tactics were made illegal by the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. (Most of its provisions took effect in 2010). As a quick example of the law’s impact: The American Bankers Association said in 2013 that the number of consumers paying late fees has fallen 75% since the CARD Act’s implementation.

The Gotchas That Can Still Get You

To be sure, there are still credit card pitfalls to fear. The biggest: Consumers who don’t pay their bills on time face both late fees and penalty interest rate hikes. But even there, the punishments have less teeth. Rate changes are no longer retroactive, and come with 45 days of warning.

Today, the biggest complaints about credit cards surround rewards programs. Some consumers claim the programs come laden with restrictions and confusing rules. In November, CFPB Director Richard Cordray revealed the agency is considering new regulations governing rewards.

And there are other fees to be aware of. Annual fees have made a bit of a return as issuers try to recoup profits lost from the end of other fees. Some have dabbled in charging extra for paper statements, or increased less common fees, like foreign transaction fees. (Some issuers, such as Capital One, charge no foreign transaction fees).

But while credit cards aren’t entirely free of gotchas, pulling out the plastic is much less perilous than it used to be. In fact, the elimination of many fees, and clarity on other penalties and repayment terms, is saving consumers $12.6 billion annually according to a paper published Jan. 26 by a team of academics led by economist Johannes Stroebel of New York University. The team found the true cost of credit – interest rate plus fees – has shrunk significantly since implementation of the CARD Act, and even more for consumers with poor credit.

“We find that regulatory limits on credit card fees reduced overall borrowing costs to consumers by an annualized 1.7% of average daily balances, with a decline of more than 5.5% for consumers with the lowest FICO scores,” the paper says.

Over-limit fees fell from 3.3% to nearly zero, the paper found, while late fees for consumers with a low credit score dropped 1.5%.

Can Some Increases Be Good?

The banking industry has long maintained regulation of fees would hurt consumers in two ways: it would force banks to raise other fees, and it would also cause some banks to issue fewer cards, reducing the availability of credit.  Last year, American Bankers Association senior vice president Nessa Feddis said in a letter to the CFPB that the CARD Act was having a negative impact.

“While the CARD Act has provided clear and significant benefits to consumers, there have also been significant trade-offs, specifically, higher costs and less availability for credit card credit,” she wrote.  Her letter cites data showing credit limits for subprime cardholders have fallen dramatically, and notes that credit card interest rates have risen during the past three years, at a time when other rates were falling.

But Cordray has argued that not all increases are bad. A simple annual fee is better than a card with booby traps, he said.

“(This) indicates a shift from hidden back-end pricing toward more transparent front-end pricing that consumers can understand and evaluate more easily,” Cordray said in October, when the CFPB released a study of the CARD Act’s impact.

And Stroebel and his co-authors say other fees haven’t risen very much, and the predicted negative impacts of the CARD Act haven’t really materialized.

“Regulators, these critics attest, are naively playing a game of regulatory Whac-A-Mole—efforts to limit certain fees will simply lead firms to offset reduced revenue with higher prices on other product dimensions and to restrict the supply of credit,” the report says. (But) “we find no evidence of an offsetting increase in interest charges or reduction in volume of credit.”

More on Credit Cards:

Image: Feverpitched

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team