Killer interest rates on credit cards – a surprisingly easy way to lighten your load!

Small business owners often attempt investment expansion by loading up on several credit cards and hoping for the best. It's not a good practice but publicity about a few notable successes has kept the practice alive. More often than not, banks have looked askance at maxed-out credit cards when they show up in credit reports. The result: banks dump on the cardholder by hiking rates to predatory levels. That may change come 2008, according to the Federal Reserve Board, but meanwhile there's a simple strategy that actually takes the heat off your credit cards. Yes, the Fed regulators are indeed working on ways to encourage banks to use plain language when they explain what they're going to do to you. Currently, lawyers write all that fine print in expert double-talk that few can understand. But the Feds are not expected to lean on banks for another year or so. They are developing models for banks to follow after the General Accounting Office published a study of the problem. Credit card companies don't clearly disclose penalties, variable interest rates and other fees, leaving cardholders confused about the true cost of using plastic to pay for everyday transactions, including cash advances. That was the conclusion of the GAO study released in October of 2006 that looked at the lending agreements and marketing brochures of the six largest U.S. credit card issuers, which account for 80 percent of the nation's outstanding credit card debt: Citibank; Chase Bank USA; Bank of America; MBNA America, which is now part of Bank of America; Capital One Bank; and Discover Financial Services. The study found many cardholders do not understand that if a borrower is late on one payment, companies will not only impose a late fee, which can reach nearly $40, almost triple that of a decade ago, but also significantly raise the interest rate on past and future charges, possibly to as high as 30 percent, according to one analysis published in the Washington Post. It noted, "Half of the companies surveyed charge interest on debt consumers have already paid. For example, if a consumer charges $500 and pays off $450 before the billing cycle ends, these companies will charge monthly interest for the entire $500, not just the remaining $50." The GAO is the research agency of Congress and its report is the most comprehensive recent study of credit card fees and pricing practices, industry executives say. U.S. consumers now have 690 million credit cards, or about six for every household, and the amount charged each year on those cards has grown to $1.8 trillion, up from $69 billion 25 years ago. The study concluded that regulations have not kept up with changes in industry practice. Sen. Carl M. Levin (D-Mich.), who requested the study, said it shows not only that disclosures are inadequate, but also that major credit card companies often engage in unfair and deceptive practices that need to be stopped. "More disclosure isn't the answer. Better disclosure is what's needed," according to Travis Plunkett of the Consumer Federation of America. "But some things should just be stopped. Whacking someone with an unfair interest rate or fee is just not fair, under any circumstances, even if you tell them in advance." The GAO recommended that federal regulators force the credit card industry to put key information in easy-to-understand English and display it prominently in easy-to-read type. Rather than wait for regulators get their act together, the simplest thing you can do is go directly to the head of your credit card issuer. Here's an example (excerpts from an actual letter to the CEO of a credit card company): "We do hope you will correct certain practices regarding cardholder interest. I will give you one such situation, my own, and ask that you straighten it out. Please accept my thanks in advance. We will use your response in an upcoming article on predatory practices for the Internet business journal Nexxt, published out of Philadelphia. "Our card unexplainably carries a current APR of 27.64% although we have never been late, never missed a payment, and, in fact, a couple of years ago paid off the entire $6,000 balance. "We trust you can have someone look into our records and revise the APR downward." Not surprisingly, the CEO delegated the responsibility for answering to an assistant. She wrote almost 1,000 words to explain that they had the right under the law to charge higher interest rates, and that we had been notified of that in advance, and indeed if we didn't like it, we could have quit the account. It was, in fact, their best judgment that they should raise the rates on this account, based on a number of factors. Then, as a total surprise, she concluded the letter by saying that, since the cardholder was primarily concerned with the increase in APR (27.64%, up from 14.99%), "as an exception to our policy, we have reinstated the previous APR of 14.99% . . ." So write a letter to the CEO. If it works for one cardholder, shouldn't it work for all? There's only one-way to find out, isn't there? It has been suggested that publication of the GAO study and the fact that federal regulators are going to crack down anyway (sooner or later), may indeed have already affected the way banks look at you. In case you haven't done the math, the difference between 27.64% and 14.99% is a whopping 12.65 percentage points. That amounts to a lot of money on an $8000 credit line.