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Deciphering Credit Card Fine Print- A Lesson in Futility?
Credit cards and fine print- the two terms seem synonymous.
Credit cards are notorious for having fine print that even lawyers can't comprehend.
The fact of the matter is this: if you sign on the dotted line for a credit card
offer, then you assume an understanding of what is entailed in the terms
and conditions— whether or not you actually understand them. Most people do give
a quick glance to what is referred to as the fine print. But let’s be honest: when
the words start sounding too legal, isn’t that when we lose interest and convince
ourselves that we know enough to use the card wisely? We think all of the extra
stuff doesn’t really apply to us— it’s just extraneous information that must be
included for legal reasons, right?
Actually, the information has to be included for legal reasons because it applies
directly to you! Knowing our intolerance for legalese, the card industry has slipped
some interesting clauses into the terms and conditions. This trend has increased
over recent years and of course the advantage goes to the card issuer. Indeed, many
consumer advocates claim that an increasing share of the card industry’s revenues
come from deceptive tactics that are hidden in the fine print.
While it may be true that some clauses seem sneaky or unfair, as long as the card
issuer discloses their rights and intent in the terms and conditions it’s perfectly
legal. Therefore it bears repeating: if you sign on the dotted line, then you assume
an understanding of what is entailed in the terms and conditions. It is
crucial that you become an educated consumer who fully comprehends what is included
in the terms and conditions of any credit card offer that you apply for. Here’s
how:
The Schumer Box
 The
key terms of any credit card are included in the Schumer Box: an easy-to-read table
that includes fees, rates and penalty fines. The Schumer Box came about in March
2004 in response to legislation (the Federal Truth in Lending Act) that requires
credit card issuers to include the costs of credit cards in all solicitations and
applications and to display them in an easy-to-read format. The box format is named
after Representative Charles Schumer who led the legislation through Congress.
The Schumer Box includes:
Annual fee (if applicable)
Annual percentage rate for purchases (APR)
Other APRs (for balance transfers, cash advances, default APRs)
Grace period for purchases
Finance calculation method
Other transaction fees (for cash advances, balance transfers, late payment, and
exceeding the credit limit)Because this information is included in all solicitations in the same format, comparison
shopping for credit cards is easier than ever. Everything in the Schumer Box is
must-know information for any credit card holder. However, there are many more items
not included in the box that are also helpful for the card holder to know. By law
these items are included in the terms and conditions of your card, and while they
may not fall in the “must-know information” category, they absolutely fall in the
“important to know so I don’t feel sucker-punched later” category.
Various Phrases in the Fine Print
 Reading
the terms and conditions of any contract can prove daunting. Here are some phrases
to look for:
~ “…if card holder is reported as delinquent on an account with
any other creditor, we may increase the APRs on your account up to the maximum Default
APR.” This is referred to as the
universal default clause, and
provides a loophole for the issuer to raise the cardholder’s APR at will. Avoid
a universal default clause if at all possible!
~ “Disputes relating to the account are subject to
binding arbitration.” Inclusion
of this phrase in the terms and conditions protects the card issuer from law suits
and class action suits. Should the card holder have any problem or dispute regarding
their account, they are limited to an arbitration hearing. The arbitrator is chosen
and hired by the card issuer, and the card holder’s legal options are severely limited.
Unfortunately, most card offers now have this provision.
~ “Balance transfer fees are added to the purchase balance and
are subject to the APR for purchases.” This means that the fees you pay for a balance
transfer are added to your purchase balance and you are charged interest on them.
~ “The Introductory APR does not apply to Bank and ATM Cash Advances”
– Usually a very steep APR is applied to cash advances. For more on cash advances,
please see our article entitled
Credit Card Cash Advance Pitfalls
Billing Cycles
 Be
wary of a card that uses double-billing cycles, also known as two-cycle billing.
What this means is that the interest is calculated on the balance you hold over
the two previous months, rather than being calculated on the average daily balance
for one month. The end result is that most consumers end up paying more interest
or finance charges on cards that use double-billing billing.
Fees
Fees, fees and more fees— it’s one of the growing methods of revenue for card issuers.
While these are usually defined in the Schumer Box, they are very easy to read over.
Fees can add quickly, so it's very important to know what types of fees are associated
with each card offer you are considering and how much each fee is.
Spending a few minutes analyzing credit card terms and conditions is not particularly
enjoyable for most consumers. However, spending a few minutes on the front end can
save you much stress and money down the road. And who among us wants more
stress and less money? :0)
By Rebecca Lindsey,
CardRatings.com Senior Reporter
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