Five Things Every Consumer Should Know About Credit Card Contracts:
Credit cards are so commonplace that many consumers assume all agreements are standard. You already know how it works – you pay the balance every month or interest accrues. Besides, the contracts are long, full of technical jargon, and tiny font. Most of the information seems like it doesn’t apply to you. Is it really worth reading the whole thing? Here are five reasons not to skip the small print when it comes to your credit card contract:
The first thing you should look at when facing a credit card contract is the rate schedule. You’re probably planning to pay the full balance every month, but the interest rates still affect you. If you pay the full balance, you will not have to pay interest on your purchases, but you are probably still being charged interest on cash advances and balance transfers. You should know what transactions trigger interest charges. Your interest rates will vary for different types of transactions. Cash advances, balance transfers, and purchases may have three different interest rates. All of this information will be laid out in the credit card contract.
If you fail to pay in full every month, interest will accrue on the unpaid balance of your account. Your credit card issuer may impose a penalty rate if you make one or more late payments. This rate is usually extremely high. Your credit card contract will list penalty rate and its duration, which may be indefinite or for a fixed number of payment periods.
You should know what your rates are. Are they variable or fixed? If they’re variable, what index do they follow? Most credit cards pin variable interest rates to the United States Prime Rate, which is published in the Wall Street Journal. That means that your credit card issuer takes the prime rate and adds a certain percentage to come out with your interest rate, which can be anywhere from 0% to 29.99%. If your interest rates are variable, they will change when the Prime Rate changes.
Your credit card contract will also contain the list of fees that your credit card issuer may collect. This includes annual membership fees, transaction fees, overdraft fees, foreign transaction fees, and penalty fees for late or returned payments. Fees are usually listed separately from rates, but certain fees and rates will apply together. For example, a late payment may incur both a penalty interest rate and a penalty fee. Different credit cards will have different fees. You should be familiar with the fees your credit card issuer may charge.
Credit card billing is governed by the Truth in Lending Act . A credit card issuer must issue your bill at least 21 days before payment is due and payments must be due on the same day each month.
The procedures for disputing a billing error are governed by the Fair Credit Billing Act ; these will be listed on your credit card contract and many companies include copies with your monthly billing statement. Generally, you must send a written complaint to your credit card issuer within 60 days of receiving the bill. Your complaint should state your name, account number, and the nature and amount in dispute. You can withhold payment of the amount in dispute while the dispute is being resolved, but you are still required to pay the rest of your bill. Your credit card issuer must acknowledge your complaint within 30 days of receiving it and must resolve the dispute within two billing cycles or 90 days, whichever is longer.
Your credit card contract will include a section on the privacy of your personal information. Your credit card issuer can share your financial information with credit reporting agencies and others. This section of the contract will tell you what to do if you believe your credit card issuer has given incorrect or incomplete information to a credit reporting agency. If the information is determined to be incorrect or incomplete, your card issuer will contact the credit reporting agency and request a correction. If not, your card issuer will contact you and inform you of its decision.
You hope that everything will run smoothly between you and your card issuer, but that is not always the case. At some point, a dispute may arise. Can you take your credit card lender to court or have you waived those rights? Before you sign, you should examine your credit card contract carefully for provisions on arbitration and litigation. Class action litigation in particular has been curbed significantly in recent years by artbitration clauses in consumer contracts. Arbitration is a form of dispute resolution  that takes place outside of the court system. Some (but not all) credit card contracts limit your action against the issuer to binding arbitration. This can limit your options in dealing with a legal dispute, but on the bright side, arbitration is usually faster and simpler than court proceedings. Whoever files the arbitration must pay the filing fee. You may be able entitled to a fee waiver or reimbursement from your credit card issuer for some or all of your fees; your card issuer may also agree to pay certain expenses for any arbitration. The arbitration clause of your credit card contract will set out all of this information, as well as the procedure for filing an arbitration.
M. Erik Clark is the Managing Partner of Borowitz & Clark, LLP, a leading consumer bankruptcy law firm with offices located throughout Southern California. Mr. Clark is Board Certified in Consumer Bankruptcy by the American Board of Certification and a member of the State Bar in California, New York, and Connecticut. View his full profile here.