Credit Card Debt Schemes

Credit Card Debt Schemes

Credit card debt is a huge problem in the United States and the borrowers aren't the only ones to blame. The credit card industry earns 1.2 trillion every year, but that isn't enough revenue for them. They want more, so almost all of them, without exception, have adopted unscrupulous policies and procedures designed to keep you in never ending credit card debt.

For you, this means having your due date "manipulated", paying bogus late and over limit fees, having your interest unjustly raised, and being charged for products or services (such as credit protection) that you never ordered.

And being a good customer is not going to protect you. Nor will paying your bill on time each month protect you. Most credit card debt companies have been sued over unfair billing practices and blatantly using tactics to cheat you out of money. These tactics are many, but below are a few listed examples:

Posting incorrect payment dates

Federal law requires credit card companies to post your payment on the date it is received. If they fail to do so, they cannot assess you late charges or added finance charges. Still, a common tactic most card issuers use is to post only those payments received by 9:00 a.m. on a given date. Payments received at 9:01 a.m. are posted the next day. This results in significant added revenue for them in the form of late fees ($29 a pop). Although major card issuers have payment processing centers that operate 24-hours a day, seven days a week, they state that they will not mark payments received on Saturday and Sunday until the following Monday - bringing in millions more in $29 late fees.

Tricking you in to paying late

Federal law requires that credit card issuers mail you your statement at least two weeks before the due date, so companies have to resort to other tactics to get you to pay late. You know that your credit card payment is due on the 25th of the month, or do you? Your issuer might suddenly change it to the 20th of each month to try and get you to mail it in late. If it's received late, they will slap you with a $29 late fee. If it's late two or more times, they can legally increase your interest rate, as much as 10 points. At various times, several credit card issuers have even resorted to not mailing out statements at all to encourage customers to pay late.

Charging you for not using your card

This is a relatively new tactic. Slapping you with a $25 fee for not using your card for six months sounds unbelievable. But unfortunately, you will see more and more issuers adopt this policy in the future.

Card cancellation fee

This will be another policy adopted in the near future. Charging you a significant fee when you close your account. Customers of Advanta once became so angry over unscrupulous billing practices that hundreds of them began closing out their accounts. Advanta responded by immediately adopting the policy of charging a $25 to anyone who canceled their credit card.

Penalizing you for carrying a big balance

If your credit card has a high balance, don't be surprised if one day you receive a letter in the mail telling you that your interest rate is being increased dramatically because your card balance is too high. This tactic is getting more and more common, so beware. Another tactic is to check your credit report regularly to see how much you're charging on other cards. If they deem it to be excessive, they will raise your rate with the excuse that you are a high risk customer.

Credit Insurance

This scam has been around forever. You don't need this insurance and, even if you tried to take advantage of it, you couldn't. This is one of the greatest scams the credit card industry ever invented. For X amount each month, they promise to pay off your balance if you become unemployed or ill. But, actually, if you read the terms very carefully, you will realize that the odds of you ever getting a dime out of them are tremendously high. Sometimes credit card companies don't even bother to get you to enroll in this program -- they just sign you up without your permission and start charging you for it. Credit insurance is a huge cash cow for the credit card industry. Imagine getting people to pay you $10, $20 or $30 for insurance when you never pay anything back in claims!

The preprinted cash advance check

If you're one of those people who have used up most of their available credit limit, then you probably receive a preprinted cash advance check each month with your statement. If paying the high cash advance APR doesn't discourage one from cashing it, perhaps the fact that the value of it likely exceeds your available credit limit will stop you from cashing it. Some issuers even warn you in the letter accompanying the check that it is written for more than your available credit limit.

But they know that the people most likely to cash that check are in desperate need of money and unlikely to read the letter. These people will cash the check and be slapped with a $39.00 over-the-limit fee. And if that isn't insulting enough, the credit card company might very well refuse to honor the check, which could have very serious consequences for those who deposited the check in their checking accounts and wrote checks against the balance.

The low interest rate credit card

You might have been lured in with the offer of a low interest rate, but after reading the above, you should know by now that it is just a lure most of the time. They will raise the rate for one reason or another:

(1) The low introductory rate

If you read the fine print, you will realize that the 0% or 2.9% introductory rate lasting six months will zoom up to 18, 19 or even as high as 24% once the introductory period is over. What credit card companies want you to do is run up a high balance on the card so they will profit enormously once that regular rate kicks in. But they aren't finished with you yet, Plan B and C are as follows:

(2) Raise your rate because you've become a high risk

You might be encouraged to charge up a big balance since your interest rate is so low. But before you do, be aware that those who habitually carry a large balance from month to month are at high risk of receiving a letter notifying them that their interest rate is being raised because they are a high risk customer. Wealthy people can usually pay their cards off and go somewhere else if their interest rates are raised, but most are stuck with the higher rate. Some credit card companies even monitor your credit report for too much debt or late pays to other creditors, and then raise your rate even if you've never paid them late. This is called universal default.

(3) Raise your rate because you paid late

It doesn't matter if the post office didn't deliver your check or you were ran over by a truck, if you send in your payment late just one time and you risk having your interest rate increased ten or more points. Most companies have a policy of raising your rate significantly if you are late twice in a six month period. Of course, they use various tactics (many mentioned above) to encourage you to pay late so they can collect the $29.00 late fee and permanently raise your rate. Those $29.00 late fees bring credit card companies much more revenue than the 24% interest rate they charge poor customers.

"The goal is to squeeze out enough revenue and get customers to sit still for the squeeze." -Providian Credit Card CEO