Credit card shoppers need to check more than interest rates and annual fees before signing up, according to a consumer group that says a "complex maze of secret billing tactics and fees" cost consumers $8.5 billion a year.
The tactics and fees also drive up effective interest rates on some credit card loans to 30 percent or more, the Bankcard Holders of America, a non-profit group based in Reston, Va., said Thursday.Its study, prepared with help from Abraham Ravid, a professor of finance at Columbia and Rutgers universities, attacked a variety of common practices.
But the American Bankers Association, the nation's biggest banking trade group, rejected the criticism, saying all the practices labeled deceptive and secret are fully and clearly disclosed in literature soliciting credit card applications and on applications themselves.
"The whole tone of the study is very disturbing and very unfair," said Virginia Stafford of the association. "If people don't read the information on the application, they may not be aware of it. But to imply it's secretive is very unfair."
Bankcard Holders, which examined the terms offered by 35 card issuers serving more than 60 percent of the credit card market, was particularly critical of what it called "phantom grace periods."
Most card issuers offer users 25 days to pay a bill before interest charges are incurred. However, if the customer makes only a partial payment, the grace period usually is eliminated for new purchases until the account is paid in full.
Thus, a customer who pays half of a $1,000 balance and then makes $1,000 more in purchases could wind up with an interest charge applied to both the $500 old balance and the new $1,000.
The group also:- Condemned fees, averaging $2.50, on top of the interest charged for cash advances.
- Criticized what it called nuisance fees, which average $11 for exceeding a card's credit limit and $8 for making a payment late.
- Warned that some banks were beginning to charge interest starting on the date of purchase rather than on the date the purchase is posted to the customer's account.