Deciphering Credit Card Fine Print- A Lesson in Futility?
Written by CardRatings.com
Posted On: December 7, 2005
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 was introduced in 1988 and is asscociated with legislation 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 Senator Charles (Chuck) Schumer.
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
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 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?