Credit cards and debt: Know your rights

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By the Office of Minnesota Attorney General Lori Swanson

As the economy falters and costs of everything from food to utilities to health care continue to rise, many people are forced to turn to credit cards to finance day-to-day living expenses. In 1968 Americans owed $8 billion in credit card debt. By 2008 Americans owe $880 billion in credit card debt!

Last year, Americans paid more than $17 billion in credit card fees alone, such as late fees, over-the-limit fees, and the like. Not all credit cards are the same and there are steps that consumers can take to limit the cost of credit and its impact on their finances.

Attorney General Lori Swanson provides the following tips to consider when dealing with credit cards:

Read the contract to understand the terms and conditions. You should closely review any contract and terms before you agree to take out a credit card from a given company. Do not take for granted the promises and sales pitches from telemarketers, credit card companies, or other advertisements. The credit card industry spends billions of dollars per year marketing their products. Do the research and know what you are buying.

Credit card companies often advertise low introductory rates or other incentives to obtain new customers, but what happens after these terms expire? Here are several questions to ask when reviewing a credit card contract:

How high can the rates and fees go? Many contracts allow a credit card company to raise rates and fees significantly for little or no reason. Low introductory rates can quickly turn to high rates that can cause a spiral of debt.

What happens if your payment is late? Under many credit card agreements, if a customer misses a payment, is late in paying, or fails to meet any responsibility in the contract, the credit card company may immediately raise their rates or change the terms of the agreement significantly. Just one late payment can trigger a double-digit rate hike.

What is “universal default?” Some credit card companies monitor your credit report to watch other accounts or debts that you may hold to determine your “credit worthiness.” Under some contracts, a missed payment on an unrelated account with a different company can trigger a “universal default,” resulting in the credit card company increasing your rates or changing your terms.

What is the cost of credit? The cost of credit includes more than just the interest rate you pay. Be on the lookout for other fees and charges. Some credit card companies charge high up-front fees just to obtain a credit card. Sub-prime credit cards, which often target people who have challenged credit, may apply high up-front fees toward a customer’s credit balance. If the account has a low credit limit, the borrower may very quickly be over their limit and pay significant fees without even making a purchase.

Negotiate the best rates and terms. Borrowers may not know they can negotiate the interest rates they pay and the terms of the contract. Whether you are applying for a new credit card or dealing with an open account, shop around to determine where you can get the lowest rates and the best contract terms. Remember, not all credit cards are the same when it comes to interest rates, fees, or other terms. Even if you already have an open account, you may negotiate with your credit card company to lower your rates and improve your terms. Don’t be afraid to ask for a better deal. If another company is offering you better rates, your credit card company may be willing to match or lower their rates to keep you as a customer. To negotiate a lower rate, just call your credit card company and ask for one. The worst the company can say is “no.” But if it agrees, you could save hundreds or even thousands of dollars per year.

How can credit cards charge such high interest rates in Minnesota? Many consumers wonder why some credit card companies are allowed to charge such high rates in Minnesota, despite the state’s usury laws. Actions by the federal government (and affirmed by court decisions) have allowed financial institutions to charge customers across the country the highest rate allowed in the bank’s home state. Through this “exportation doctrine,” financial institutions can “export” from their home state higher rates than Minnesota would typically allow from a financial institution that is incorporated in Minnesota. As a result, some Minnesotans who do not pay close attention to the terms and conditions of their credit card could wind up paying interest as high as 30 percent or more.

Once you have decided on a given credit card and opened an account, you may still be subject to rate increases, changing terms, or other costs that you did not expect. To maintain good credit standing and best manage your credit card debt, follow these tips:

If you can afford it, pay your full balance on time every month. This is the best way to avoid a high cost of credit and will also help you build your credit rating. Even during months where you are not able to pay the full balance, make sure you pay on time to avoid pricey late fees. Try to pay more than just the minimum payment whenever you can.

Limit the number of credit cards you have. Your credit score determines how much you pay for credit. If you have too many credit cards, your credit score may be lowered. This may make it harder to obtain other credit when you try to buy a car or home.

Closely review your statement every month. Watch for changing terms, increases in fees, or interest rate hikes. In the event of any such changes, call the credit card company to negotiate better rates and terms. In this age of Internet purchases and identity theft, watch for unauthorized purchases. Under the federal Fair Credit Reporting Act, your liability is limited to pay for such charges if you report them in a timely manner.

Know your rights. If you have questions or concerns about credit cards or financial institutions, contact the Minnesota Attorney General’s Office. Additional resources include:

Minnesota Department of Commerce, ?(651) 296-2488 or 1-800-657-3602; www.commerce.state.mn.us.

Office of the Comptroller of Currency, ?1-800-613-6743; ?www.occ.gov.

Office of Thrift Supervision, ?1-800-842-6929; ?www.ots.gov.

Federal Deposit Insurance Corporation, ?1-877-275-3342; ?www.fdic.gov.

Federal Reserve Board, ?1-888-851-1920; ?www.federalreserve.gov.

Tags: credit, card, debt, rights, scams