U.S. credit card agreements unreadable to 4 out of 5 adults

If you’ve ever thought that credit card agreements are difficult to read, then you’re not alone. 

A recent study conducted by Credit.com confirms what we’ve all suspected: Credit card agreements are not written in the simplest language. In fact, evidence from the study supports the idea that agreements may be written to utterly confuse us all.

Read the interesting details of Credit.com’s detailed study, which concludes that the average credit card agreement is written at a 12^th grade reading level, “making them not understandable to four out of five adults.”

How credit cards with no spending limits can hurt your credit score

A great article recently published by The New York Times investigates how credit cards with no limits can hurt your credit score.  I highly recommend that you read it.

Also, be sure to read this article: “There is no such thing as a credit card with no limit”. It will help you better understand how some of these cards actually work.

Visa misleads customers. Compliance is not “courtesy”.

 

About a month ago I received a letter from Visa, informing me that it will be canceling my credit card account. As I normally do when I get such bad news from a creditor, I put down the letter and let my nerves cool for a few hours.  This was especially bad news because of two problems: 1) This account, opened in college, was the oldest account on my record. Thus, closing it will have a major effect on my credit score.  2) I will no longer have access to personal credit.  (I still have my American Express card open, but I have avoided using it altogether because of the company’s insidious policies.)

After cooling down, I realized that this can turn out to be a good thing.  More than ever, I will be forced to maintain positive cash flow, which I have.  So, I decided to pay the outstanding balance of $2,569.85 in full and to close the account on my own terms.  (I wanted to make sure that my credit report shows that I closed the account, not the creditor. Also, I looked forward to the added satisfaction of sticking it to Visa first.) 

Right before I paid off and closed the account, the customer service representative says, “As a courtesy, I will waive the $14.95 fee for expedited payment via the phone.” I almost had a fit. According to the new Credit CARD Act, companies can no longer charge such a convenience fee.  I stayed quiet, fuming smoke through my ears and nose.  I was not in the mood to inform the representative of the law. I was most eager to pay the account off, close it, hang up, and blog about the experience. 

In short, I share this because it shows the continued skulduggery of some credit card companies which have not learned their lesson.  The more things change, the more they stay same the same.

Citi adds $60 annual fee to more credit card accounts

 
Published courtesy of LowCards.com.

One week before the CARD Act goes into effect, Citi has added an annual fee to more accounts on many of its popular credit cards.

Many Citi cardholders are receiving letters about a $60 annual fee that is being added to their account effective April 1, 2010. If consumers make $2,400 in purchases during the year, then the annual fee will be credited back to their account.

It appears that Citi's test of adding an annual fee to a small percentage of their customers in August of 2009 proved successful for the issuer. At that time, Citi began charging some cardholders an annual fee of $30 to $90 unless they spent at least $2,400 per year. Now a far greater number of customers are receiving this notice.

Maximize relief dollars, remove transaction fees

It has been done before: credit card companies temporarily suspending transaction fees to maximize the dollar amount of donations going to help disaster relief and recovery efforts.  Given the catastrophic proportion and immediacy of Haiti’s need, it should be done now.

When disaster occurs and private donations abound, credit card companies reign in a considerable amount of money through transaction fees.  Companies such as Visa, which has come under fire for its high transaction fees, make about three cents of every dollar donated.  Visa and other companies will likely rake in millions of dollars of profit as a result of the donations made via credit card for the Haitian relief efforts.  

Instead of eagerly watching their bottom lines swell, credit card companies should cease this opportunity for humble leadership and partial redemption.  While the existence and convenience of their processing infrastructure is certainly valuable and has an associated nominal cost, the need for every penny of relief is most important.

Join me in demanding that credit card companies suspend their transaction fees to maximize relief efforts in Haiti. 

For more information about how much credit card companies will profit, read an article released today in the Huffington Post.

Credit card securitization encourages fee-based profit model

One of the major reasons for the current economic downturn is securitization, the process of pooling and selling to investors certain assets which have regular repayment schedules like mortgages and credit card loans.

For example, a mortgage company may pool its 30-year fixed-rate mortgages of homeowners with a credit score of 750 and above, and therefore create a mortgage-backed security with a seemingly safe investment rating of AAA.  For simplicity, let’s say the first two years of payment coupons from all the pooled mortgages adds up to be $200 million.  The mortgage company may sell to a buyer, a money market fund perhaps, the first two years of coupons for $180 million.  While it may seem like a $20 million loss to the seller, it could be a quick gain for a company unwilling to wait two years for their money. Moreover, this deal lessens the seller’s risk.  As for the buyer in this case, such a purchase is a great short-term investment, especially one with such a high rating and unlikelihood of default. Some investors even go as far as selling bonds based on these assets in the secondary market.