by Barbara Sowell cross-posted from Digital Journal
Many banks have deliberately designed billing systems to periodically generate payment due dates that are 5 to 6 days earlier than normal in an effort to catch automatic bill payers in a missed due date scam!
As soon as the earlier than normal bill pay date is missed, your credit card interest rate will zoom up permanently and you will be assessed a whopping late fee.
In May of 2008 the Federal Reserve adopted new rules that will make sweeping changes both good and bad. One change will permanently ban this practice. Keep in mind, however, that rules adopted by the Federal Reserve won’t go into effect until July 1, 2010.
Here’s a summary of the changes from an article in Tulsa World by Julie Delcour.
New protections in store: Even before the worldwide credit crisis struck, the Federal Reserve Board had been working to adopt new rules that might not protect consumers from themselves but would protect them from some of the worst abuses by credit-card issuers. These new rules would stop companies from arbitrarily hiking interest rates on money already borrowed and hiking rates on customers who had never made a late payment and kept accounts current. The regulations also stop issuers from charging late fees if bills to cardholders arrived less than 21 days before payment is due. The rules would nix "universal default," a smarmy practice in which one issuer raises the interest rates if the consumer makes a late payment on any other credit account for any reason. But the FED rules won't go into effect until July 2010, an unacceptable delay.
Two years ago I wrote an article, Bank of America’s Latest Credit Card “Missed Due Date” Scam on my blog. The article dealt with the mechanics of a problem that many people are likely to encounter if they have a bank credit card and also have a good payment record. The follow-up article, You and Credit Card Due Date Roulette, explains how you can pay one credit card late and suddenly all of your credit cards make an outrageous jump in interest rates!!! It’s called the Universal Default Clause.
Thanks to contacts from readers and new comments left on the articles, I have become aware that the problem isn’t going away. It’s growing.
Last month I received this comment:
BOA is back at it again. Just paid my card off last month and found out today that they moved my due date up one week without any electronic notice!
Of course the banks will tell you that it isn’t a scam. They will explain that for accounting purposes, they must sometimes squeeze payments in order to get twelve payments within the year. But ideally Banks should give ample notice to credit card customers when they anticipate a future jump-back in due dates.
My friend in the BOA article found a manager who was able to correct the situation. After reviewing his excellent payment history, the manager agreed to correct the situation by removing the late fees and returning the interest rate to the earlier low rate.
Money Under Thirty recently wrote Consumer Alert: Citi May Move Your Due Date Without Notice, an article about the same practice at City Bank. Apparently calling and complaining worked. “They moved the date back and assured her there would be no late fee. Thank goodness.”
Yesterday the Sacramento Bee has an excellent article Personal Finance: You can fight credit card changes with some wonderful tips on how not to get caught in the new credit card clamp down. Here’s a short introductory excerpt:
From American Express to Washington Mutual, card companies are getting tougher on terms: Credit lines are being yanked. Minimum payment amounts have jumped. Interest rates are doubling. Card transactions are being declined. . . .
Credit card companies are getting hammered by the same financial pressures affecting their customers. Faced with rising rates of delinquencies and defaults, they're trying to cover their losses. Meanwhile, cash-strapped consumers and small businesses – battered by job losses, layoffs and rising costs – are tapping their credit cards for even basic spending. . . .
The good news: Under rules adopted in mid-December by the Federal Reserve, banks will no longer be able to raise credit card rates without good reason and must give you more warning – and in type that's more prominent and visible on your billing statement.
The not-so-good news: Those changes won't take effect until July 1, 2010. (For details, see "Credit Card Relief.") . . .
Be cautious on closures. Lots of fed-up consumers want to close their accounts. But experts warn it can backfire. . .
So until the new rules go into effect in July of 2010 expect to face more of these problems with your credit cards and remember that you may be able to successfully fight the moving due date scam.