Credit card companies are imposing hidden charges and deceptive fees that are bleeding major dollars from consumers, according to a new report from the Durham-based Center for Responsible Lending.
One of the new industry practices alone is currently costing American families $720 million a year, a figure that could grow to $2.5 billion if more credit card issuers adopt the practice, calculates the report issued Thursday by the consumer advocacy group.
The new costs involve interest rates linked to the prime rate, late fees and international transaction fees, among others.
Overall, the industry has been altering at least eight practices to compensate for lost revenue stemming from new regulations adopted by the Federal Reserve and a reform law passed by Congress that is scheduled to take effect in February. The practices the study examines either aren't banned by the new measures or it's debatable whether they are prohibited, said the report's author, Joshua Frank.
The report doesn't include an overall price tag for the practices, but Frank estimated that it exceeds $1 billion.
All the changes are "either hidden or obscure and complex enough that most consumers are unlikely to notice these strategies or to fully appreciate their cost implications," the report declares.
Frank contends that the industry abuses are a strong argument for creating a Consumer Financial Protection Agency to monitor credit card companies "as they come up with new tricks."
The center has had some success in the past persuading Congress to beef up protection for consumers with regard to mortgages and other issues.
Officials at the American Bankers Association, Visa and MasterCard either couldn't be reached for comment or had no immediate comment.
Among the abuses the report cites:
Pick-a-rate: Credit card companies that have pegged their interest rate to the prime rate usually have meant the prime rate on the last day of the billing cycle. But an increasing number of issuers have switched to picking the highest rates occurring within a 90-day period. The center examined prime rate data since 2000 and concluded that such a practice raises the annual percentage rate, or APR, by 0.3 percent.
With an estimated 117 million accounts affected, the impact adds up fast. The center calculates that the total cost to consumers today is $720 million per year, and could reach $2.5 billion a year if pick-a-rate becomes the industry standard.
Manipulation of penalty fees: Five years ago, many of the largest credit care issuers imposed their highest penalty fee on late payments involving balances above $1,000. Today the threshold for the highest fee is typically $250. The result: 87 percent of consumers end up paying the highest fee, up from 53 percent several years ago.
International transaction fees: More credit card companies are adopting an international transaction fee for purchases involving a currency exchange, and the fee is rising. Most credit issuers who had such a fee charged 2 percent in 2004, but today the norm is 3 percent.
