2008-05-02 / Columnists

Notes On Consumer Affairs

By Assemblywoman Audrey Pheffer

AUDREY PHEFFER AUDREY PHEFFER Everywhere you look signs of a troubled economy present themselves. One of the most worrisome signs is the dramatic increase in revolving debt being racked up by consumers on credit cards in the wake of the subprime mortgage meltdown. The latest consumer credit data from the Federal Reserve indicates that families unable to obtain relatively low interest home equity loans due to the "credit crunch," are increasingly turning to credit cards in order to cover their expenses during the economic downturn. Revolving debt, the category that includes credit card borrowing, increased $5.5 billion dollars in January. Credit cards make our lives easier and provide numerous benefits, but like any financial product, it is important to understand the rules in order to save money and avoid getting caught in a cycle of debt.

Looking to sign up for a credit card? Beware of the classic "bait-and-switch" offer. Issuers may advertise credit cards with an amazingly low interest rate, but the fine print states that if the applicant doesn't qualify for the premium interest rate, another card with a higher interest rate may be issued instead. To protect yourself, after you apply for a credit card, compare the interest rate that you were offered with the interest rate you received. If they are not the same and you are not satisfied, you may wish to cancel the card.

Many issuers entice customers with rock-bottom introductory rates for balance transfers, but that low rate often comes with a high transfer fee, often between three and five percent. If you are transferring a large amount of money, say for example $1,000, the transfer would cost you $40. Before transferring a balance, make sure you read the fine print and do the math to see if the transfer will really save you money.

One fee that you might not expect involves paying your bill on time over the phone. A recent survey by Consumer Action, a non-profit consumer advocacy group, found that thirteen out of twenty issuers surveyed charge consumers a fee for paying their bill over the phone. These fees ranged from three dollars to as much at fifteen dollars per payment. In order to avoid these fees, consider paying your bill by mail or over the Internet.

If you want to save money on your credit card bill, you will definitely want to pay close attention to your credit card's grace period, which is the period of time during which your transactions accrue no interest. Credit card issuers used to offer a thirty day grace period, but nowadays many credit card issuers offer grace periods of twenty-three days or twenty days. Some credit card issuers offer no grace period at all.

Card issuers charge hefty late payment fees, which generally range between twenty-nine and thirty-nine dollars. Additionally, after just one or two late payments, most credit card issuers will raise the credit card holder's interest rate, which will cost even more in the long run. Credit card issuers also charge hefty fees for card holders who exceed their credit card limits. If a card holder exceeds his or her credit limit, even by just one cent, he or she can expect to pay an over-thelimit fee, which may be as high as thirty nine dollars.

Unfortunately, over the past thirty years the ability of states to regulate the credit card industry has been slowly eroded as a result of two Supreme Court decisions, changes in the banking industry, and recent federal rulemaking preempting the application of state laws to national banks. Thankfully, several legislative proposals have been introduced at the federal level that would rein in the most abusive credit card practices. In the meantime, consumers should remain on guard when signing up for new credit cards or making charges on existing credit cards.

To learn more about your credit cards and their rules and regulations, ask your credit card issuer for a copy. For more information, you may want to visit the New York State Consumer Protection Board's Consumer Credit website by pointing your web browser to: http://www.consumer.state.ny.us/ and clicking on the "Consumer Credit" icon in the upper right-hand corner of the page.

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