Credit cards more transparent, but problems remain

New credit card offers have dropped most of the practices considered "unfair" or "deceptive" by the Federal Reserve, thanks to the passage last year of the Credit CARD Act of 2009.

Unfortunately, new trends have emerged that could still cost cardholders.

The report found that credit card issuers have removed practices including "hair trigger" penalty rate increases (disproportionate charges for minor account violations), unfair payment allocation and raising interest rates on existing balances.

In their place have come sharp rises in cash advance fees, widespread use of other penalty interest rates and an emerging trend of nondisclosure of penalty interest rates in online terms and conditions.

"While it's been less than a year since passage of the Credit CARD Act, the new law appears to be working for millions of Americans who have credit cards," says Shelley A. Hearne, managing director of the Pew Health Group.

"The elimination of most of the 'unfair' or 'deceptive' practices of the credit industry since we last surveyed the marketplace marks a major milestone in the move to make credit cards safer, transparent and more fair for consumers. Most of the news is good, but we are seeing the rise of new harmful behavior," Hearne said.

The study, by the Pew Charitable Trust, "Two Steps Forward: After the Credit CARD Act, Cards Are Safer and More Transparent But Challenges Remain," in March, examined 450 credit cards, which were offered online by the nation's 12 largest banks and 12 largest credit unions.

The report found:

• Many of the most troublesome credit card industry practices are gone. Earlier Pew research found that before the implementation of the law, 100 percent of the credit cards surveyed included at least one of these troublesome practices.

• New practices benefit consumers. Less than 25 percent of all cards examined had an over limit fee, down from more than 80 percent of cards in July 2009 Mandatory arbitration clauses, which can limit a consumer's right to sue are now found in only 10 percent of cards, compared to 68 percent in July 2009.

• Missing disclosures. At least 94 percent of bank cards and 46 percent of credit union cards came with interest rates that could go up as a penalty for late payments or other violations. However, nearly half these warnings failed to inform the consumer of the actual penalty interest rate or how high it could climb.

• Surcharge fee hikes. Surcharge fees for cash advances rose sharply between July 2009 and March 2010. Bank cash advance and balance transfer fees increased on average by one-third during this period, from 3 percent of each transaction to 4 percent. Credit union cash advance fees went up by one quarter, from 2 percent to 2.5 percent.

Crystal Chow is a DeadlineNews Group associate editor who contributed to this article. 

Image: Credit card (Petr Kratochvil, PublicDomainPictures.net)