Report: Credit Cards Deploying 'Pick-A-Rate' Tactic

eCreditDaily.comCredit card issuers are deploying a new tactic ahead of reform laws in February – dubbed “pick-a-rate” – that uses the highest prime rate in a 90-day period, instead of using the customary “last day of the billing cycle,”  according to a consumer watchdog’s new report.
In effect, the larger time-period window gives credit card issuers the option of pegging a cardholder’s interest rate to a higher prime rate, said the Center for Responsible Lending, the nonprofit consumer group that focuses on household finance issues.
“This change can significantly raise a cardholder’s cost, often without his or her knowledge,” the CRL said. “This particular practice alone costs Americans $720 million a year and, CRL predicts, could grow to $2.5 billion annually in a few years as the practice spreads.”
The so-called pick-a-rate strategy is one of the tactics outlined in CRL’s new report, “Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate.”
The CRL said it examined the practices of issuers that hold over 400 million credit card accounts, and found at least eight specific industry practices that flourish, despite efforts from the Federal Reserve, which is creating the rules for the credit card reform laws set to take full effect Feb. 22.
The reform act features landmark restrictions on when and how card issuers can raise interest rates, impose penalty fees and change or modify account policies. However, lawmakers and consumer groups have urged the Fed to bolster the rules for the Credit CARD Act of 2009 as practices surface designed to circumvent the new laws.
“The Credit CARD Act that Congress passed earlier this year was a big improvement for American families. But our research shows that industry keeps finding clever ways to get around meaningful reform, and we need a regulator focused on making financial products fair,” said CRL researcher, Josh Frank, the report’s author.
Another tactic centers on the marketing of late fees, the report said.
Credit card issuers have steadily lowered the balance amount it takes to be considered in the highest balance category. That shift subjects cardholders to the highest fees. 
“Card issuers have lowered the cut-off for the balance that triggers the highest late fee, so that today a balance of $250 is assessed the same penalty fee as a $1,000 balance,” the report said. “The result is nine of every 10 cardholders will incur the largest fee if they pay late. In addition, the average late fee today is $39, while the typical past-due amount is approximately $50.”
Click here for the CRL’s full report.

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