Tuesday, March 12, 2013

Pitfalls Of Paying Late On Credit Cards

Before February of 2009 there was this horrendous practice by creditors called a "Universal Default" that could catapult you into credit devastation.  The main practice was if you were to make a late payment to one creditor, all of the rest of your creditors could hike your interest rate to oblivion (okay, a little exaggerated but pretty common to see around 30%) even if you had never been late on those cards or credit extensions.  They would repeatedly be checking their consumers' credit reports for these late pays and then swoop in like vultures to reap the financial paydays they were allowed to render on mostly unsuspecting "debtors."  They could raise the interest on both current and future purchases, making the interest hike RETROACTIVE!  It may have been legal, but it certainly wasn't ethical or moral.  But, since when are banks or creditors ethical or moral? You should know by now that its always about money and profit to them.

Well, in February 2009, there was new legislation that went into effect that claimed to prohibit this practice of  "Universal Default."  I say claimed because, typical of anything that affects banks or lenders and is within reach of unscrupulous lawyers, there's going to be lobbying and backroom deals to make sure that any legislation would have plenty of loopholes and spin to still stab the consumers and rake in the money for them.  The legislation is called the CARD Act (Credit Card Accountability, Responsibility, and Disclosure Act).  It was supposed to protect consumers more and rein in the creditors a bit.  It was touted as the end of  the "Universal Default" practice.

So here we are now and there's no more Universal Default.  Except, there kind of is, its just that they call it by different names and it plays out a bit different.  Here's how the CARD Act works.  If you have a credit card, or credit line, whatever, some sort of credit agreement with a lender, and you've become 60 or more days late, they can hike up your interest rate if they want to (and you know they want to), to however high they want - there is no cap on the amount they charge for a "penalty interest".  However, under this act, if you are good little children and pay your bill on time for the next 6 months in a row, they have to restore your interest rate back to what it was before you got behind.  They also can't raise your interest rate based on your performance on other credit obligations. Kind of sounds like they care about us consumers doesn't it? 

Don't be fooled.  Those are about the only "good" things for consumers in this legislation.  How about this:  You are one of the best of the best.  High FICO Scores, never late, pay more than minimum, had the credit card for over a year. Can you believe that if they want, they can practically arbitrarily increase your interest rate to whatever amount they feel like?  And the fees -- oh the fees!! They are endless!  They can fee you now if you don't go paperless, or fee  you to pay by phone, or in person, or fee you for the convenience of accepting your payment, or an annual fee, you name it. They can make up all kinds of fees and call them whatever they want, to squeeze every last dime out of you.  

If you're late on a different credit card bill or credit account that is unrelated to them, they can give your situation another name, put you into a category where they can spank you.  So, if you are a bad child and end up as a potential defaulter, they can cancel your account or lower your credit limit, or raise your minimum payment or both the last 2, if they want.  If they raise your interest rate for whatever reason they make up, they can raise the minimum payment to an amount that would allow you to pay off the balance in 5 years.  That could be quite a payment hike!  They do have to give you a 45 day notice for raising your interest rate. But, if they don't raise the interest rate, they can raise the minimum payment as high as they want, and they don't have to give you an advance warning.  They don't have to give you an advance warning if they decide to close the account, either.

So, is there anything else that is "good" about this new-ish CARD Act?  Here's a few.  If they raise your interest rate and you say, "uh, no, you don't deserve my business, cancel the card," they can't make you pay the balance off in full in such short notice.  They have to allow you to make payments and pay it off in up to Five Years.  They can't "penalize" you with a higher interest rate for being late on some other company's card, and they can't raise the interest rate as a "penalty" for being late on their card, unless you are more than 60 days past due.  They have to review your account in 6 months from the start of the "penalty phase" and lower your interest rate back to what it was.  They can't post that you were late making a payment on your credit report(s) until after you are over 30 days late.  They have to keep the same due date every single month.  They have to send you a bill at least 21 days prior to it being due.  They cannot charge you for being late for not paying them midday. The cutoff time has to be at least 5 pm, their time.

So, for those of you that are still using credit cards, make sure that you're not late, at least more than 60 days late because that is when the heavy penalties can take affect.  Just be careful, read all your disclosures carefully, especially for those accounts you've had a long time.  They put those small print, contract changing enclosures in your bills.  You don't want an unwelcome surprise and not respond in time, if you cannot accept their new terms.

If they've already beaten you down and you can't or don't want to pay them anymore, no doubt your credit report has suffered.  You may want to think about fixing your credit.  If its not a job you look forward to, and don't want to handle all on your own,  feel free to call me or email me for some help.  Fighting these out of control creditors and scum of the earth  3rd party collectors is what I completely enjoy.  I would love to help you as well!

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