Credit Card Problems Get Top Billing
With all of the other newsworthy events happening each day in the world, you probably wouldn’t expect an article about credit card fees to be the lead story on a major news website. But that’s exactly what happened on the afternoon of Thursday, September 20th. MSNBC.com featured an article on credit card rates by Herb Weisbaum as the top news story of the day. The full article can be found here.
In the article, Mr. Weisbaum brings up many interesting facts about credit cards that warrant being recapped here:
• Despite its pledge to take on the credit card industry six months ago, Congress has yet to act to reduce or limit the high fees and penalty interest rates
• At a time when they should be reducing fees and rates, many card issuers are increasing late fees, cash advance fees, and default fees (see this GAO study for more information)
• Some cards have added a third tier to their fee structures. Instead of charging one late fee for balances below a certain amount and another for balances above that amount, by having three levels, higher fees can be charged with lower outstanding balances
• Even though the recent, and much publicized, half-point rate cut of the Federal Reserve will eventually find its way to consumers with variable rate credit cards, card issues tend to reduce rates more slowly than they raise rates
• The Federal Reserve rate cut will have little or no impact on penalty rates and fees
The rest of the article goes on to describe why credit card cash advances are such a bad idea for the consumer. Examples were given of a card that charges an interest rate over 28% for cash advances on its standard accounts. Taking money out at that rate was reported to cost $465 in interest and fees over the course of a year for an advance of $1,500.
While tapping into savings or applying for a Home Equity Line of Credit (HELOC) are both suggested as cash advance alternatives, another viable choice was not discussed: Lending Club P2P loans are a favorite choice of people in need of cash who wish to avoid the incredibly high interest and fees of credit card cash advances. With rates comparable to a HELOC, without the need to time up the equity in your home, Lending Club may be the best solution for your cash funding needs.
Mr. Weisbaum concluded his excellent article by urging consumers to write to their representatives in Congress and urge them to make changes to credit card regulation. The fees and interest charges common to the credit card industry have certainly gotten out of control.
Wednesday, September 26th, 2007 at 7:17 am