Credit Cards

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Tuesday, February 24, 2009

One More Reason to Read Those Credit Card Terms and Conditions Carefully

One More Reason to Read Those Credit Card Terms and Conditions CarefullyWe've all heard horror stories about it, and we all dread it. I'm talking about fine print. Many of us fail to read it, or even give it a cursory glance before we sign, or agree to something. I'll tell a story of how fine print can trip a person up, and end up costing them more than they expected.

A little over a year ago, my husband opened a credit account with Bank of America. He received the card in the mail, activated it, and began to use it. I advised him to read the terms and conditions carefully, but with the bravado that's so typical of him, he said that "he didn't have time for fine print". I shrugged, and went about my business, hoping that he wouldn't go too crazy with the credit card, and that we'd be able to pay the balance each month.

Oh, how wrong I was.

We managed to pay the balance for about six months, then he bit off more than he could chew by requesting a cash advance on the card. He found an incredible deal on a classic car that needed restoring, and the owner wanted $2500 for the vehicle. He got the cash, but not before I again told him that he should review the terms on the credit card agreement that referred to the interest rate charged on cash advances (If I recall correctly, the rate was 32%. Steep!). He was in such a rush to get the car that technicalities like that weren't important to him. They soon would become important, however.

The next month we couldn't afford to pay the entire balance, of course. The total owed on the card was $3,100, and after we paid all the necessary bills like rent, car insurance, water, phone, and utilities, we could barely manage to pay the minimum of $150. As times got rougher, we couldn't even bear to pay the minimum. After about five more months of not paying at all, the account went into default and collection efforts were started. My husband received several "courtesy notices" reminding him of the money he owed, and he foolishly continued to disregard them. Then, the efforts got decidedly less friendly.

My husband checked his online banking statement one morning, and he was more than $1,000 overdrawn. He'd written five other checks the week previously, but they didn't add up to what he'd had in the account, which was almost $4,000. Here's a breakdown of what the bounced checks were supposed to pay for.

  • Car insurance. He lost coverage that month, and had to borrow money from his parents to get it reinstated.-The phone bill. Our house was without phone and internet service for a week, until he was able to pay the bill, plus the returned check fee, in cash.
  • Our electricity bill. Luckily I was able to call and get an extension, to avoid having the lights cut off.
  • The water bill. As with the electric company, I was able to negotiate a payment arrangement to avoid losing the water service.
  • The trash collection bill. As that was the smallest bill of the lot, my husband was able to go to the hauling company's local office and pay in cash.

He called the customer service number for Bank of America, and after waiting ten minutes to speak to a representative, he found out why the account was so seriously in the red. Since he hadn't read the fine print on the credit card agreement, he hadn't known that his Bank of America card was linked to his Bank of America checking account- and that after the account went into default, the credit card company could go in and drain his bank account to pay the bill. He was angry and shocked, but it was really his mistake because he didn't bother to read the terms and conditions that went with the card.

After alternately pleading, feigning ignorance, and arguing with the Bank of America credit card customer service rep, he finally negotiated a deal where he'd be partially reimbursed for the money taken out of his checking account. He ended up losing $2,500- the amount of the cash advance he'd gotten. He was still irritated about that, but as I quite rightly pointed out, losing $2,500 is a lot better than losing nearly $4,000. I told him to let that whole experience serve as a lesson and a warning, which, thankfully, he has. He's much more diligent now about reading the fine print on everything.

Always, always read the terms and conditions on any credit card you're about to sign up for. The credit card companies LOVE it when people don't read the fine print, because that means they can slap them with all kinds of late fees, higher interest rates, and other miscellaneous charges. It may not be exactly fair, but it's perfectly legal.

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Chase "Forces" Me to Close My Favorite Business Credit Card

Chase business credit card goes from 9.9% fixed to 15.24% variableIt's the old credit card bait 'n switch. The credit card banks bait you with attractive terms and generous rewards programs to get you to signup. Then, they wait. They wait for you to accumulate a large enough balance, then jack up your interest rate. I've been reading about this a lot on other websites recently; now it's happened to me, with my Chase business credit card.

Just got a snail mail notice from Chase informing me that the company is going to raise the interest rate on my favorite business credit card, from a fixed rate of 9.9% to a variable rate of (Prime + 11.99%) = 15.24%. 15.24% is now the interest rate floor for this card, since Prime is not likely to go any lower. Chase business credit card: Important notice regarding changes to you accountOf course, I have the option to opt out of the change. This would cause my account to be closed, and I would then continue to pay the balance down to zero at the original 9.9% APR.

Thankfully, I'm prepared for this contingency. I plan on paying the balance off with some cash from savings and a small loan via Lending Club

I don't have to borrow any money via Lending Club to payoff my Chase business card, but I really like the idea of Lending Club -- bypassing the banks and borrowing from regular folks across the country -- and I want to go through the process of borrowing through Lending Club myself so that I can report on my experience here in this blog.

To be perfectly honest, I really like my Chase business card, but, clearly, it's time for us to part ways. With the U.S. Prime Rate at 3.25%, any rate above 10% is a subprime rate, in my opinion, and I'm not a subprime borrower. I took advantage of an excellent 0% intro APR offer with this card, and, when the 12-month, interest-free period ended, I used the cash back rewards program to lower my cost of borrowing to a nominal level.

I really like the cash back rewards program with this card. I spend money on it and reward points accumulate. Then, when points reach a certain threshold, I simply login to my account and request a statement credit. With a few business days, the statement credit is posted to my account. Easy. No forms to fill out, No waiting until the end of the year to get my cash back reward and no waiting for a snail mail check. I will miss this rewards program.

I have to hand it to Chase for being honest. In the change of terms notice they sent, they explained the change as a, "response to market conditions," and they also added that the company wants to "maintain profitability."Chase business card change of terms to maintain profitability I'm hating the change but I respect the honesty. Contrast this with the Barclay's notice I received when that credit card bank closed my BJ's Visa Card. The company wrote that it was to, " [me] better manage [my] credit accounts..." In other words, not only did they close my account without consulting me first, they also felt it necessary to insult my intelligence.

In other business credit card news: Citi® closed my inactive CitiBusiness® card recently. I will miss this card because:

  • it had a decent credit line (~$10,000) which enhanced my business's credit profile, and

  • the account was aged which, again, contributes to my business's credit rating. It was my first business credit card.

CitiBusiness Card: Closed!

So now I'm left with 3 business credit cards: two from Bank of America and one from Advanta. The Advanta card is about to be anointed as my "goto" card, because I'm still enjoying 0% intro APR on purchases, and the purchase APR will jump to a somewhat reasonable 7.99% when the interest-free period ends . I have been reading some horror stories about this particular Advanta business card (unwarranted rate hikes), but so far I've all is well. If Advanta tries to pull some funny business by raising my rate, I'll just pay the card off (my credit limit is under $3,000, and my balance isn't anywhere near that.)

As a final note: it's really no wonder that American Express is consistently rated as the best credit card bank. Right now the company is offering some high-risk cardholders a $300 payment (in the form of a prepaid gift card) in exchange for these accountholders paying their balance down to zero within a certain timeframe, and closing their account. Now that's my kinda' credit card bank!

NB: In that same JD Power & Associates Credit Card Satisfaction Study(1), Discover Card placed second.

Chase, on the other hand, has identified certain credit card accounts that may be at risk for default, and has responded by imposing a $10 per month fee. Yikes! I'm not a public relations professional, but I do have some sage advice for JP Morgan Chase CEO Jamie Dimon: stop doing that!

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