Study Finds Credit Union Credit Cards More Consumer Friendly Than Bank Issued Credit Cards
The Woodstock Institute recently released a report entitled "Blindfolded Into Debt: A Comparison of Credit Card Costs and Conditions at Banks and Credit Union." It suggests that the very confusing terms and conditions used by bank credit cards contribute to increasing consumer debt.
The report also indicates that credit cards issued by credit unions have comparable interest rates to bank credit cards and that they have fewer and lower fees, along with lower default rates and clearer terms and conditions.
Some findings of the survey were:
- Bank credit cards have high fees including a service charge which is usually a percentage of the amount transferred on balance transfer offers. Credit unions are much less likely to charge fees on balance transfers.
- Bank credit card APRs are difficult to understand. One credit card may have several interest rates: one for purchases, another for cash advances and still others for balance transfers and cash advance offers.
- Banks seek out customers randomly. Last year, five million mail solicitations were sent out by banks, and credit was sometimes extended to consumers who couldn't afford it. However, credit unions only made offers of credit to their specific membership groups.
- Most banks surveyed used 'universal default' in their terms and agreements whereas none of the credit unions surveyed did. This allows the issuer to increase the interest rate when the consumer makes a late payment to a different creditor or utility provider. This practice makes it difficult for the consumer to pay off their balance at rates that can average 25.4 percent.
The report suggests that one of the key factors for the high level of debt among Americans could be the complex structure of penalties and fees in the credit card industry. In 1980, U.S. household debt was approximately 70 percent of disposable income and today it is more than 105 percent.
To view the complete report, please visit the Woodstock Institute online.
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