Deciphering Credit Card Fine Print--A Lesson in Futility?
|Rebecca Lindsey is a staff writer for Credit Ratings.com.
offers a consumer report of US credit cards and instant online approvals. Named
among the 'Web's Best Sites' by SmartComputing magazine! The site is courtesy of
Citizens for Fair Credit Card Terms, Inc.
Credit cards and fine print—he two terms seem
synonymous. Credit cards are notorious for having fine print that even lawyers
can't comprehend. The fact of the matter is this: if you sign on the dotted line
for a credit card offer, then you assume an understanding of what is entailed in
the terms and conditions—whether or not you actually understand them. Most
people do give a quick glance to what is referred to as the fine print. But
let’s be honest: when the words start sounding too legal, isn’t that when we
lose interest and convince ourselves that we know enough to use the card wisely?
We think all of the extra stuff doesn’t really apply to us—it’s just extraneous
information that must be included for legal reasons, right?
Actually, the information has to be included for
legal reasons because it applies directly to you! Knowing our intolerance for
legalese, the card industry has slipped some interesting clauses into the terms
and conditions. This trend has increased over recent years and of course the
advantage goes to the card issuer. Indeed, many consumer advocates claim that an
increasing share of the card industry’s revenues come from deceptive tactics
that are hidden in the fine print.
While it may be true that some clauses seem
sneaky or unfair, as long as the card issuer discloses their rights and intent
in the terms and conditions it’s perfectly legal. Therefore it bears repeating:
if you sign on the dotted line, then you assume an understanding of what is
entailed in the terms and conditions. It is crucial that you become an
educated consumer who fully comprehends what is included in the terms and
conditions of any credit card offer that you apply for. Here’s how:
The Schumer Box The key terms of any credit card
are included in the Schumer Box: an easy-to-read table that includes fees, rates
and penalty fines. The Schumer Box came about in March 2004 in response to
legislation (the Federal Truth in Lending Act) that requires credit card issuers
to include the costs of credit cards in all solicitations and applications and
to display them in an easy-to-read format. The box format is named after
Representative Charles Schumer who led the legislation through Congress.
|The Schumer Box includes:
|Annual fee (if applicable)
|Annual percentage rate for purchases
|Other APRs (for balance transfers, cash
advances, default APRs)
|Grace period for purchases
|Finance calculation method
Other transaction fees (for cash advances,
balance transfers, late payment, and exceeding the credit limit) Because this
information is included in all solicitations in the same format, comparison
shopping for credit cards is easier than ever. Everything in the Schumer Box is
must-know information for any credit card holder. However, there are many more
items not included in the box that are also helpful for the card holder to know.
By law these items are included in the terms and conditions of your card, and
while they may not fall in the “must-know information” category, they absolutely
fall in the “important to know so I don’t feel sucker-punched later” category.
Various Phrases in the Fine Print
Reading the terms and conditions of any contract
can prove daunting. Here are some phrases to look for:
~ “…if card holder is reported as delinquent on
an account with any other creditor, we may increase the APRs on your account up
to the maximum Default APR.” This is referred to as the universal default
clause, and provides a loophole for the issuer to raise the cardholder’s APR at
will. Avoid a universal default clause if at all possible!
~ “Disputes relating to the account are subject
to binding arbitration.” Inclusion of this phrase in the terms and conditions
protects the card issuer from law suits and class action suits. Should the card
holder have any problem or dispute regarding their account, they are limited to
an arbitration hearing. The arbitrator is chosen and hired by the card issuer,
and the card holder’s legal options are severely limited. Unfortunately, most
card offers now have this provision.
~ “Balance transfer fees are added to the
purchase balance and are subject to the APR for purchases.” This means that the
fees you pay for a balance transfer are added to your purchase balance and you
are charged interest on them.
~ “The Introductory APR does not apply to Bank
and ATM Cash Advances”—Usually a very steep APR is applied to cash advances. For
more on cash advances, please see our article entitled Credit Card Cash Advance
Be wary of a card that uses double-billing
cycles, also known as two-cycle billing. What this means is that the interest is
calculated on the balance you hold over the two previous months, rather than
being calculated on the average daily balance for one month. The end result is
that most consumers end up paying more interest or finance charges on cards that
use double-billing billing.
Fees, fees and more fees— it’s one of the growing
methods of revenue for card issuers. While these are usually defined in the
Schumer Box, they are very easy to read over. Fees can add quickly, so it's very
important to know what types of fees are associated with each card offer you are
considering and how much each fee is.
Spending a few minutes analyzing credit card
terms and conditions is not particularly enjoyable for most consumers. However,
spending a few minutes on the front end can save you much stress and money down
the road. And who among us wants more stress and less money? :0)