Is credit card "fine print" too complicated for consumers? A 2016 study from CreditCards.com argues that's the case.
"An analysis of more than 2,000 current card agreements shows they're written, on average, at the 11th-grade reading level - better than five years ago, but still too hard for at least half the population to readily understand," the report says.
Why are credit card contracts so mind-numbingly laborious? It's intentional, as card issuers really don't want you to know how their rate, fee and cost structures are tilted in their favor. Change that equation by getting wise on credit card contract fine print - especially these ten "gotcha" items.
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"Every credit card agreement I've seen has a pre-dispute mandatory arbitration clause, many of which specifically prohibit the cardholder from participating in a class action, even if the class action is filed in an arbitration forum," says Don Peterson, an Orlando-based attorney who has practiced consumer protection law for almost 20 years.
Peterson's second "fine print" pick would be cross default agreements. "These agreements provide that if a borrower defaults on a different account -- even with a different bank -- then the credit card issuer can declare their account in default," he notes. "This leads to increased default rate interest when the credit card payments are current."
Certain card agreements state the card provider can "raise your interest rate at any time, for any reason, or for no reason at all," says Mike Arman, a retired mortgage broker and former college finance and business instructor. "American Express has that in its card agreement," Arman says. "Talk about a unilateral contract - we're bound, but they are not."
"This is a new one," Arman says. "Card companies say the terms of your use of our card allows us to call you at any time, by any means, live or recorded messages, on any contact number or e-mail we may have for you. If this is
not acceptable, please pay off and return the card."
This item is yet to be tested in court, Arman adds. "It isn't legal for someone to insist you sign away your rights as a condition of doing business with them, and in the case of semi-monopolies, like with credit card firms, constitutes a contract of adhesion," he notes.
"In the fine print of most credit card user agreements, you'll see a clause that allows the bank to increase your interest rate as high as 29.99% if you are ever late," says Randall Yates, founder and CEO of The Lenders Network. Even if you are just one day late, the creditor can jack your rate up, Yates notes. "This is the case with most credit cards so make sure you make your payments on time," he says. "Set up auto pay with your creditor so you can relax knowing you'll never miss a payment."
Credit card companies are crafty about the payment due dates, too. Often, card companies will note a specific time the bill needs to be paid (for example, 12 p.m..) If you pay the bill, at 1 p.m., sorry, you're officially late in paying your monthly bill.
Many credit cards offer medical evacuation coverage, which covers you in the event you're overseas and suffer an illness or injury that requires (usually) immediate treatment. But such coverages have limits. For example, your coverage likely only covers evacuation, and not actual medical care. Or, any coverage paid for without the approval of a card benefits administrator will likely not be reimbursed or covered. "People really need to know how their credit card medical evacuation coverage work," says Janice Lintz, a New York City-based consumer advocate and freelance travel writer. "For instance, will it pick you up off the side of a mountain or in a field?"
Overseas travelers who count on the collision waiver damage (CDW) when driving overseas may not know their card covers an accident in some countries, but not in others. Additionally, only certain rental vehicles qualify for coverage. Visa, for example, doesn't offer CDW coverage for high-end vehicles like Rolls Royce, Porsche, or Cadillac, among others. Vans aren't covered, either. "Knowing where your CDW waiver is valid and not valid is important when traveling," says Lintz. "For instance, Amex has exclusions for certain countries such as Italy, while MasterCard does not."
Credit cards firms also bury this nugget in your contract's fine print - they can share your personal data (i.e. spending habits, amount of money spent over a specific period of time, or the time of day you're most likely to spend money) with third party companies. If you're unsure about whether or not your data is up for sale, call your card company and request that it remain private.
Many credit card customers believe they're getting a fixed-interest rate when they sign up for the card. Who can blame them? That's how cards are marketed. But in actuality, most credit cards use a variable rate model, which is buried in the card contract's fine print. The variable rate is usually tied to the prime interest rate, a key index used by banks to set interest rates on myriad consumer loan products, such as credit cards or home loans. Thus, when the prime rate goes up, so does your credit card interest rate, even though you believe you signed up for a fixed-rate card.