Credit, Debit, Secured & Prepaid Cards

It’s easy to see why credit cards are so appealing.  They appear to be a painless way to buy what you want now, and pay for it later.  But there’s more to them than just that.  Here are some terms you need to know when choosing or using a credit card:

• Credit Card: These cards are part of a revolving credit line.  They have a pre-set credit limit.  You must pay charges in full, pay the minimum due or make a partial payment. Credit cards are not the same as debit cards with a Visa or Mastercard logo or your pin-based ATM card.
• Secured Credit Cards: These cards are guaranteed by money deposited in an account.  The credit limit is equal to the amount of the deposit. There may be extensive fees (application, processing, annual, etc.) which can eat up the initial deposit. Interest rates tend to be higher than conventional credit cards.
• Sub-Prime Credit Cards: These cards are marketed to people with lower credit scores.  They have a low credit limit, high interest rates, fewer perks, and fees of up to 25% of the initial credit limit.
• Prepaid Credit Cards: These are the reloadable cards you can typically buy at the grocery store. Since real money is being drawn down, they are more similar to debit cards; so they do not build credit. Be aware of fees hidden in fine print.  The CFPB has recently enacted comprehensive protections for these cards including mandatory disclosure rules.
• Balance transfers: The ability to transfer balances from one card to another.  Interest on the balance begins to accumulate immediately.
• Convenience checks: Checks that are connected to your credit card account and can be used to transfer a balance, make purchases, or make payments.
• Grace period: The period during which charges do not build up if you are not carrying a balance.
• Minimum monthly payment: The lowest amount you are required to pay the credit card company per month.
• Payment due date: The last day that payment will be accepted without penalty.  Your credit card company must mail or deliver your credit card bill at least 21 days before your payment is due . 

Regardless of the type of card you have or the company your card belongs to, you may be charged fees.  Check the list below to see what type of fees may affect you and see the “Your Rights” tab for more information on how you are protected from fees.

• Annual or Monthly Fee: A fee for having the card.
• Balance transfer fee: Charged for transferring a balance from one card to another. This fee is often calculated as a percentage of the balance transferred.
• Bounced check or returned item fee: A fee charged if your check bounces or payment cannot be processed.
• Foreign transaction fees.  A fee charged to conduct transactions that involve a foreign bank if you buy a good or service from a company in a foreign country or use your card to buy a good or service in a foreign country. These were formerly called currency conversion fees because card issuers said they imposed them to cover the cost of converting a foreign transaction into U.S. dollars, but  now they're called foreign transaction fees because they're charged even for deals made entirely in dollars. You don't even need to travel abroad to see this fee.  All that has to happen is that a foreign bank is somehow involved.
• Late payment fees.  Charged if your payment is late.  Your credit card company cannot charge a late payment fee that is greater than your minimum payment.
• Over-the-limit fees.   A fee charged if a purchase takes your balance over your credit limit.  Under new regulations, your credit card company can only charge you this fee if you authorize it to allow you to go over your limit.  If you do not authorize your credit card company to allow you to exceed your credit limit, your transaction will probably be rejected.  You cannot be charged an over-the-limit fee that is greater than the amount you exceeded your credit limit. For example, if you exceed your credit limit by $5, you can't be charged an over-the-limit fee of more than $5.
• Stop payment fee: Charged when you stop payment on a credit card convenience check.
• Wire transfer fee: A fee charged when you use your card to transfer money or when you buy lottery tickets, casino gaming chips, or money orders.

Cash or credit?  Until now this choice has been a matter of convenience, but as of January 27, 2013, this decision may impact your wallet at checkout.  Retailers now have the option of passing the surcharge fee, typically between 1.5% and 4%, to consumers when a credit or charge card is used. 

Passing the surcharge to consumers is not mandatory and retailers may not charge consumers this added fee.  However, you should know what to look for before making a purchase. 

Below are some helpful tips and guidelines regarding credit card surcharges:

• Stores that charge checkout fees or surcharges will have to post a notice at the entrance to the store and will have to disclose the exact amount at the point of sale.
• Retailers are not required to disclose the surcharge fee in advertisements. 
• You should always contact the retailer to find out if there are any extra fees before you go to the store. 
• Before checking out, ask the clerk if there is a surcharge fee and how much it will be.
• Online retailers must disclose the surcharge on the first page that a credit card is mentioned; meaning the total can change moments before checking out.
• Retailers can only surcharge consumers for the actual cost of processing credit card transactions.
• This surcharge does not apply to debit and prepaid cards.

Acts such as the Credit Card Accountability, Responsibility and Disclosure Act of 2009 have been created to protect you and your credit card.  Read the sections below to see how you are protected.
Fees

• Excess payments. Credit card companies must apply excess payments to the highest interest balance first.
• “ Double- cycle”  billing, or the practice by which issuers use the balance in a previous month to calculate interest charges on the current month, is prohibited.
• Late fees of more than $25.  Your credit card company cannot charge you a fee of more than $25 unless one of your last six payments was late (in which case your fee may be up to $35) or your company can prove that the costs it suffered as a result of late payments justify a higher fee.
• No inactivity fees. Your credit card company can't charge you inactivity fees, such as fees for not using your card.
• One-fee limit. Your credit card company can't charge you more than one fee for a single event or transaction that violates your cardholder agreement. For example, you cannot be charged more than one fee for a single late payment.
• Caps on high-fee cards. If your credit card company requires you to pay fees (such as an annual fee or application fee), those fees cannot total more than 25% of the initial credit limit. This limit does not apply to penalty fees.

• Term changes.  If your credit card company is going to make changes to the terms of your card, it must give you the option to cancel the card before certain fee increases take effect. If you take that option, however, your credit card company may close your account and increase your monthly payment.
• Fee changes.  Your credit card company must send you a notice 45 days before they can change certain fees (such as annual fees, cash advance fees, and late fees) or rates that apply to your account or make other significant changes to the terms of your card. The company does not have to send you a 45-day advance notice if you have a variable interest rate tied to an index and the index goes up, your introductory rate expires and reverts to the previously disclosed "go-to" rate, or your rate increases because you are in a workout agreement and you haven’t made your payments as agreed.
• Minimum payment warning.  Your monthly credit card bill must include information on how long it will take you to pay off your balance if you only make minimum payments. It must also tell you how much you would need to pay each month in order to pay off your balance in three years. Issuers are be required to show the consequences to consumers of their credit decisions. 
• Cardholder contracts.  Creditors must give consumers clear disclosures of account terms before they open an account, and clear statements of the activity on consumers’ accounts afterwards.  Issuers are required to make contracts available on the Internet in a usable format. 
• Marketing to students.  Card issuers and universities must disclose agreements with respect to the marketing or distribution of credit cards to students.

• Any time and universal default increases are prohibited.  Rate increases on existing balances due to "any time, any reason" or "universal default" clauses are prohibited.
• Increases following late payments are restricted.  Under the new CARD act, your rates can increase only after you are more than 60 days late on a payment. If, for 6 months after the rate increase, you are not late on any of your payments, your rate increase must be terminated.
• No interest rate increases for the first year. Your credit card company cannot increase your rate for the first year after you open an account, except:
  • If your card has a variable interest rate tied to an index
  • If there is an introductory rate, it must be in place for at least 6 months; after that your rate can revert to the "go-to" rate the company disclosed when you got the card.
  • If you are more than 60 days late in paying your bill
  • If you are in a workout agreement and you don't make your payments as agreed
• Increased rates apply only to new charges. If your credit card company does raise your interest rate after the first year, the new rate will apply only to new charges you make. If you have a balance, your old interest rate will apply to that balance.

• Minimum purchase.  Since July 2010, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, merchants can set their own credit card minimum purchase requirements of up to $10, as long as they apply the rule evenly to all credit cards. This means that some merchants might not accept your credit card if your purchase is less than $10. (Minimum payment requirements are not allowed on debit cards.) To know if a merchant has a credit card minimum purchase policy, look for signs on or near checkout.
• Young consumers.  If you are under 21, you need to show that you are able to make payments or you need a cosigner in order to open a credit card account. If you have a card with a cosigner and want an increase in the credit limit, your cosigner must agree in wriing to the increase.