Friday, Oct. 30
Posted 11 a.m. EST
Bankrate reporter Leslie McFadden contributed this entry.
None of the credit cards offered by the 12 largest banks in the country comply with the requirements of the Credit Card Accountability, Responsibility and Disclosure Act, according to a study from The Pew Charitable Trusts released Wednesday. The CARD Act was signed into law in May, but doesn't take full effect until next year.
The nonprofit conducted the same study in December 2008 after the Federal Reserve issued rules regarding "unfair or deceptive" credit card practices, which go into effect in July 2010.
When the research was repeated in July 2009, the results showed that issuers hadn't curbed abusive policies. "We found that all of those practices continue to be widespread and in fact in some cases they're even more widespread," says Nick Bourke, author of the report and manager of the Pew Safe Credit Cards Project.
For instance, 99.7 percent of bank cards allow the issuer to rewrite the terms of the agreement at any time, up from 93 percent in December.
The study encompassed 400 credit cards across 24 issuers -- the 12 largest banks and 12 largest credit unions. For each institution, the research included all consumer credit cards offered online. The December survey didn't consider credit union cards.
Some of the key findings from the 36-page report:
- 90 percent of bank cards allowed overlimit fees or late payments to trigger penalty rates. Most of these cards had "hair trigger" rules where one or two late payments per year could spark a rate hike, even if the payment arrived an hour late.
- More issuers are installing a fixed minimum rate, or floor, on variable-rate cards. In the December 2008 study, just 1 percent of bank cards had a minimum purchase rate. In July, 9 percent of bank cards had floors on the purchase rate. Nine percent of credit union cards also imposed a minimum rate.
- Nearly all bank cards still apply payments to lower-rate balances first. In December, 100 percent of bank cards applied payment first to lower-rate balances. In July prevalence declined to 95 percent -- but only because those 5 percent didn't disclose their payment allocation policy.
- The number of bank cards with annual fees increased from 11 percent to 16 percent in July. The median annual fee of $50 remained unchanged.
- 80 percent of bank cards, and 89 percent of credit union cards, charged an overlimit fee. On both types of cards, 99 percent charged a late fee.
Cards issued by the 12 largest credit unions, which control only 1 percent of outstanding credit card balances, offered more reasonable rates and fees. The median purchase APR on credit union cards was between 9.90 to 13.75 percent, while purchase APRs for bank cards ranged from 12.24 to 17.99 percent.
"The penalty fees on credit union cards are half what they are at banks," added Bourke. "The median late and overlimit fee at credit unions is $20, but at banks the median late and overlimit fee was $39."
Half of the credit union cards in the study didn't even charge penalty interest rates. Only 10 percent of bank cards didn't charge a penalty rate.
"Bottom line, the credit unions are offering lower upfront rates, with lower fees and less risk of unfair or deceptive practices."
Compare credit union cards and bank cards on Bankrate.com.
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