Recent congressional hearings brought to light a lot of bad stuff happening in the credit-card industry.
I was really glad to see those hearings trigger some favorable changes -- which I'll get to in a minute.
The hearings also helped me understand the games an aggressive card issuer could play to its advantage.
So here are some fair warnings about the games credit-card issuers play, and actions you can take to deal with them.
These hearings followed a huge 114-page General Accounting Office report issued last year on the current state of the business.
Without going into too much detail, the GAO found a lot of questionable practices and in particular took aim at the weak or nonexistent disclosure of those practices.
I suspect credit-card issuers don't want you to know about these tricks of their trade.
- Interest-rate games: Here's the most insidious one: the so-called universal-default trigger, where a late payment on any credit card or installment loan can cause your interest rate to explode -- sometimes 20 or more percentage points -- without clearly notifying you.
Your issuer probably has some internal triggers, too. And those triggers can be hair triggers: Some issuers cut off the receipt of due-date payments at 9 a.m. Who would consider this to be the end of the business day?
They can raise your rate if you make a late payment, have too much debt, get a new credit card or apply for a mortgage or car loan -- all without clearly or directly telling you.
- Average daily balance games: Average daily balances are multiplied by interest rates to calculate interest charges. You might think you've paid your balance in full, avoiding interest charges. Guess again. Credit-card issuers are moving toward two-cycle billing, which penalizes consumers who carry a balance even if only occasionally.
Here's how it works. Suppose you start with a zero balance and then charge something. If you don't pay the balance in full, they charge interest on the entire period, from the date of the first charge. So you end up getting no grace period.