New Tricks And Traps Evolve

The CARD Act went into effect this year with the intention of ending “tricks and traps” that credit card companies had been building into their fine print.   For example, payments would be due on Sundays or holidays when payments were not accepted.   Payments would then be credited the next day, with all of the requisite interest, penalties, and late fees.   I was a strong supporter of the CARD Act on these pages despite the criticism that credit card companies would find new types of tricks and traps.   I knew that the CARD Act would only be a cure for the existing abuses of the industry, not a vaccination against future abuse.   Like an especially malignant disease, the banking industry is destined to evolve new ways of defeating yesterday’s medicines.

The Latest Tricks and Traps

The Wall Street Journal has the scoop on how banks are changing to defeat the spirit of the CARD Act.   They start out by citing the increase in annual fees.  I have no problem with this as annual fees are not tricks and traps.   Sure, I don’t want to pay them, but at least these fees are clear, honest, and up front, like the recent announcement of the increase in annual fee for the vaunted Starwood Amex. On the other hand, I am frankly surprised that they are offering corporate cards rebranded as  “professional cards” in a blatant attempt to get around the CARD Act.   The law excluded corporate cards from it’s provisions, but I did not expect that banks would exploit this loophole.  It seemed as if maintaining two different sets of rules would be too onerous.   I have learned my lesson and will never underestimate the capacity for financial institutions to find ways around the rules.

Another example is how the Discover Card is still making payments due on Sundays and holidays, seemingly in defiance of the CARD Act.   Here is the money quote from a spokesman either without a soul:

“We were in compliance with the Card Act,” says Discover spokesman Matthew Towson. “The law states that if a creditor does not receive or accept payments on weekends or holidays, then the date is extended. But we accept payments seven days a week.”

A newspaper of record might say “It is unclear how they accept payments on Sunday when the postal service doesn’t deliver mail.” but I can just call that BS.

Life Imitates The Simpsons

There was a Simpsons episode where Bart envisions the future with Lisa as President.   When she realizes that she must raise taxes, the following conversation occurs:

Lisa:        If I’m going to bail the country out, I’ll have to
raise taxes, but in my speech I’d like to avoid
calling it a, “painful emergency tax.”
Milhouse:    What about, “colossal salary grab.”
Lisa:        See, that has the same problem.  We need to soften
the blow.
Milhouse:    Well, if you just want to out-and-out lie … [Lisa
doesn’t object] Okay, we could call it a, “temporary
refund adjustment.”

Later the guys at the bar react:

Moe:        Refund adjustment?  Hey, sounds good to me.
Lenny:        Sure beats a tax.
Carl:        We love you, President Simpson.

Keep that in mind when you read this true story:

The Card Act also stipulates that issuers can’t jack up rates on existing balances unless a cardholder is at least 60 days late. But there is a creative maneuver around that: the so-called rebate card.

Citibank rolled out rebate-card offers to some of its customers last fall, offering to refund up to 70% of finance charges when customers pay on time. The problem: Rebate offers aren’t governed by the Card Act, and an issuer can revoke them suddenly and hit cardholders with high charges.

The net result is the same as raising rates—and because it is perfectly legal, customers have little recourse. “Rebates on finance payments may seem like a good deal, but you could end up with a very high interest rate suddenly,” says Mr. Frank, of the Center for Responsible Lending.

So just remember Citibank customers; It’s not a fee, its a Temporary Rebate Adjustment!

Lisa:		If I'm going to bail the country out, I'll have to
		raise taxes, but in my speech I'd like to avoid
		calling it a, "painful emergency tax."
Milhouse:	What about, "colossal salary grab."
Lisa:		See, that has the same problem.  We need to soften
		the blow.
Milhouse:	Well, if you just want to out-and-out lie ... [Lisa
		doesn't object] Okay, we could call it a, "temporary
		refund adjustment."