Old Credit Card Tricks Are New Again

(MoneyWatch)  Since Congress enacted the consumer-friendly credit card law back in May, you'd think that the cardcos would have at least started to roll back all those bad practices that it bans.

You'd think. After all, if you knew you were starting Weight Watchers on Monday, wouldn't you stock up on healthy goodies like fruit, vegetables and low-fat yogurt?

Not if you were a card company. Then you'd gorge on French fries, pizza, chocolate cake and taco chips. Or, in their world, unilateral interest rate hikes, misleading balance transfer arrangements and other bad stuff. Their behavior is described in "Still Waiting: 'Unfair or Deceptive' Credit Card Practices Continue as Americans Wait for New Reforms to Take Effect," a report out this month from Pew Charitable Trusts.

Pew analyzed 400 card offers from 12 banks who comprise about 90 percent of the market. The result? Not one single card would meet all the requirements of the new law.

Of the 400,

• 99.7% allow the issuer to raise interest rates on outstanding balances -- up from 93% last December. The law allows rate hikes, with a 45-day written notice, but a card company cannot apply the new rate to an old balance.
• 90% had penalty interest rates that could be hair-triggered. In 51 percent, a single missed due date could set off a penalty rate; in another 39%, a second missed payment within 12 months; in 80%, one or more over limit charges would activate the penalty rate.
• 95% applied payments to the balance with the lowest interest rate. The law will require payments to be applied proportionately.

Supposedly, all these nasties will be gone as of February 22 when the new law goes into effect. But the card companies have workarounds.

Take rate hikes. The law allows issuers to raise rates with a 45-day written notice. And no applying the new higher rate to an old balance. BUT, as I pointed out in an earlier post, card companies are increasingly shifting customers to variable-rate cards, whose interest fluctuates with an index like the prime rate. With a variable rate, you get no advance notice of an increase, and the new rate does apply to the old balance. What's more, the rate can rise as high as the sky but can't drop below a specified minimum.

And what about those hair-trigger penalty rates? Well, cardcos can still slam them on your account. The new law only prohibits issuers from applying them to your old balances -- unless you're 60 days past due. And, according to Pew, the median penalty rate has risen a point in the past year to a whopping 28.99%.

It will be nice to see payments applied to all your accounts -- new purchases and balance transfers (don't ever take cash advances) -- as the law requires. But beware of balance transfers. Those now on offer may offer a 0% rate, but it lasts only about 4 months and comes with a 5% transfer fee. A 4-month loan with a 5% fee is the same as an annual loan with an APR of 15%. Not such a great deal. And, if you don't pay off the loan within 4 months, the interest rate reverts to whatever you pay for new purchases. If that's 19% and you add in the 5% fee? I don't know how much that comes to, but it's more than anybody should pay.