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The Gall in Your Credit Card's Fine Print


If you think you're immune, better read it more closely.

If you think you're immune to the machinations of the credit-card industry, think again. Read every communication like it's your very first one.

I recently got a preferred customer 0% APR promotional check from JPMorgan Chase (JPM). Use the check by November 30, and that rate is in place until August 2010. The offer seemed way too good to be true. That's because it was.

Much smaller type in the "Good to Know" box carried this clinker: A fee of 3% (up to $299) applies to each transaction. Finance charges begin to accrue immediately.

In the old days, these checks sometimes maxed out at a $35 fee -- $75 tops. Loosely translated, writing a 0% APR check for $3,000 under the current terms would result in an immediate fee of $90 or so. The actual APR of this transaction would be 36%.

Ask just about anyone you know and they'll have a story to share. Minyanville contributor Carol Kopp had a recent run-in with her issuer Citibank (C), narrowly averting an interest-rate hike to 29.99% and prompting her to write to Rep. Barney Frank, chair of the House Financial Services committee.

"As I am one of those old-fashioned journalist types, I never get overtly involved in a political issue, but now I am so mad I could spit," she said. "I realized recently that Citibank, my credit-card issuer, was slyly moving my due date back by one day every month in hopes that I would blow the deadline and they could charge me a big fat fee."

Minyanville editor-in-chief Kevin Depew almost got snagged by Citibank as well. On a routine customer service call about a completely different matter, he learned the bank would no longer allow the leeway of crediting automatic payments on the Monday following a due date that falls on a Sunday.

If he hadn't made the unrelated call, his payment would have been late, triggering both a late fee and an increase in the interest rate. The kicker on Depew's story: He had to pay a fee to make the payment to avoid incurring even bigger fees.

Citibank is just one financial institution that uses South Dakota as its credit-card base. The state has no usury law capping the amount of interest a bank can charge a customer.

The New York Times this week chronicled the squeeze on customers as it wrapped up a four-part series on the shifting landscape called The Card Game.

The Federal Reserve last week said borrowing by consumers for revolving credit, including credit cards, fell at an annual rate of 13.3% in September, the same as August. Americans are borrowing less as they try to repair cracked nest eggs and replenish rainy-day funds in a dismal jobs market.

But strong borrowers are feeling the brunt. This week, the Fed reported that 50% of banks responding to its survey are increasing interest rates and reducing credit lines on borrowers with good credit scores. About 40% said they're imposing higher fees.

Yesterday, American Express (AXP) Chairman and CEO Kenneth Chenault said spending on its credit cards increased in October for the first time this year. The amount charged on AmEx cards rose 3% in October, compared with the same month last year, after a more than 5% decline in September and a more than 10% decline in August.

American Express is one of the card lenders who recently announced an interest-rate increase for good customers of its card products that allow balances to be carried from month-to-month. (See also, AmEx and Me: Of Cards, Costs, and Customer Loyalty.) In a gesture of good will, the company agreed to drop fees charged to people who go over their limit.

For consumers with the time and patience to spare, it still pays to complain.

"I just battled Lord & Taylor, which tried to put a big fee on my card because the mailed payment was allegedly a day late," said one long-time New York customer. "I called customer service, said I'd been a customer for 10-plus years and if they didn't remove the fee I was going to cancel my card and do my shopping elsewhere. They removed it."

The House approved by a vote of 331-92 a bill that would accelerate the enactment of the Credit Card Responsibility and Disclosure Act (see Can My Credit Card Company Do That?).

Prospects of Senate passage are dim.

Read more about the current state of credit here.

Copyright 2009 Minyanville. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. AP contributed to this report.
No positions in stocks mentioned.
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