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Ralph Nader > In the Public Interest > Financial Industry “Nickels and Dimes” Consumers

“Nickel and diming” the consumer is now a big, booming business in the financial arenas of corporate greed and fraud. Bank charges, currently numbering over two hundred varieties, bring in nearly $20 billion a year to the banks. First Union even charges its customers 50 cents for a deposit slip and $2 for each call to an employee beyond two a month.

The General Accounting Office, the auditing arm of Congress, estimated that ten percent of health care expenditures are drained away through billing fraud and abuse. That is about $100 billion this year.

The credit card industry works overtime in the nickel and diming business. One company, Advanta, announced a charge of $25 when you quit them!!! Another company charges you if you pay your balance on time!!!
Now comes San Francisco-based Consumer Action (CA), a 28 year old, non-profit consumer education association, with a list of profit-maximizing impositions on credit card users. Late fees have risen nearly 75% since 1995. Although general interest rates have declined significantly in recent years, the average APR (annual percentage rate) on all cards in a survey of 117 cards from 74 banks was 15.25% — slightly higher than in recent years.

Since 1995, Bank of America has increased its late fees from $7 to $25 and Wells Fargo from $5 to $29 — clearly reflecting profit-center mindsets rather than increased bank costs.

The increases in penalty rates, beyond the late fees, ranged from 16.25% to 24.95% or an average of 4.5% points higher than the regular rates of 35 bankcards surveyed.
Next on the spiral list are higher “over the limit” fees, charged each month that your balance exceeds your credit limit. In 1995 Consumer Actionfound only one bank charging as much as $20. By 1998, CA found 18 cards that had over the credit limit fees of $20, 31 charged $25 and 13 billed cardholders for $29.

On and on goes the squeeze. “Grace periods” getting shorter, “leniency periods” being curtailed, “minimum payments” are lowered. CA Executive Director, Ken Eldowney, added: “If you have a card with an introductory rate and you make a couple of late late payments, your APR could jump 15 percentage points. We see plenty of direct solicitations with 4.9% teaser rates, but if you’re not careful, you can get zapped with a penalty rate of close to 25%.”

Instead of answering their phones with real staffers, banks are sweating their creativity on overcharge strategies. One consumer, whose Chevy Chase card went from 11.9% to 19.9%, finally got an explanation of sorts. She was told it could have been triggered by several factors, including — get this — “too few bank promotional inquiries on the account.”

According to CA, the bank did not appear to know that when credit reports are “prescreened” prior to a promotional offer, credit bureaus are not allowed to reveal prescreening inquiries to other creditors.

Corporate regulations are controlling more and more of peoples’ own money. Increasingly, when they overcharge with this “nickel and diming.” your account is either debited immediately or charged to your credit card and, if you object, your credit rating or rates or penalties may go against your desires.

The consumer finance system is rigged so one-sidedly that even reading the fine print doesn’t matter. All the so-called competitors have the same fine print and where you can shop around, your newest choice may soon change the terms and cause you to experience the observation — “they got you coming and going.”

Members of Congress occasionally speak up against anti-consumer practices of credit card companies and urge corrective legislation. All these bills, so far, have been proposed by Democrats, but the chairperson of the relevant subcommittee in the House of Representatives, Rep. Marge Roukema (R-NJ) has not yet taken them up.

All this shows why improved consumer class action rights and better state antitrust laws, which allow private rights of action in court, are needed. Some portion of any government penalties exacted from the culprits should be devoted to facilitating the organization of non-profit consumer advocacy groups specializing in fighting these abuses and pushing toward more balanced fine print agreements between credit card issuers and users.

For more information from Consumer Action, either write to 717 Market Street, San Francisco, CA 94102 or use its E-mail: [email protected]