Read Your Credit Card Correspondence

Oct 23, 2009

This week First National Bank of Omaha customers received a letter outlining changes that will go into effect on November 24, 2009.

In the letter, they explain that they are trying to operate the business efficiently by attempting to reduce rising credit and operating costs. This, according to FNB, allows them to offer “quality products at competitive terms.”

The next paragraph blames the bad news on the new federal regulations – which have “significantly increased” their costs.

Customers have until noon on November 24 to reject the changes. If they choose to do so, ability to use the account will terminate on the “good thru” date shown on their credit card. Then they will be allowed to pay their remaining balances under current terms and conditions.

What are the changes?

Cash advance fees will be higher. Balance transfer fees will be higher. And most significant to card holders carrying a balance, the annual percentage rate is changing.

Rather than a fixed rate, the rate will be variable. The new rate will be equal to the Index plus a margin of 26.74%. That means that right now it would be 29.99%. With the Index this low, it probably can do nothing but rise, so paying off that card as fast as possible is smart.

The new rate will apply to all existing balances except promotional rates, and all future purchases, balances transfers, and cash advances.

This move was an expected reaction to the new federal regulations, because after the new rules go into effect, credit card issuers will be prevented from imposing higher rates on existing balances. They needed to get these high rates in place and transfer fixed-fee balances to variable rates before the law changed.

The move by Citigroup, which has now imposed annual fees on many of its existing credit card accounts, was also expected.

Citigroup, like FNB, cited the increased cost of doing business as its reason for the new charge. It also offered to waive the fee if the consumer uses the card to charge at least $2,400 over the course of the year. In other words, they hope you’ll carry a balance and pay them some interest.

Citigroup is not alone – about 28% of credit card offers carried an annual fee this year, compared t about 17% last year. The amount of the fee is also increasing and now is at an average of $82.

The bottom line: Read credit card offers carefully, and read every correspondence from your credit card issuer.

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