12 Ways Financial Institutions Screw You Over
Nothing gets a group of people talking like a good “bank screwed me over” story. Dissatisfaction with banks, credit card issuers and stock brokers is so widespread that entire forums are bursting with complaints and horror stories to which most of us can personally relate. While it’s unlikely that any of these companies will listen, we thought it’d be useful to gather the most common (and sneaky) ways financial institutions screw people over into one place so you can keep an eye on your money.
Charging Interest On A 0% Balance
Amazingly, SmartMoney tells us that creditors can even charge interest on those carrying a 0% balance. Puzzled as to how this might happen? Here’s the example they offer:
Say you buy a $900 refrigerator that you pay off in three months, paying $300 plus whatever interest charge you have each month. Then on the fourth month, after you’ve supposedly paid off the balance, you still receive a bill with an interest charge. That’s because the credit-card company has continued charging you interest during your third grace period, or the 20 or so days between receiving your third statement and the date you send in your payment, Sherry explains. “People tend to pay their bills on the due date,” she says. “This is opening them up to 20 days of interest charges.”
When asked if this was common practice or an exaggerated anomaly, SmartMoney was clear in stating that “50% of banks surveyed use this.”
Changing Payment Due Dates
Another sneaky tactic banks and creditors are increasingly utilizing is the unannounced (or very softly announced) payment date switch. Very simply, creditors can arbitrarily change the day your payments are due with hardly any advance warning, which in turn triggers a late payment, which in turn triggers late fees and possibly even the permanent rate increases discussed earlier. It’s difficult to imagine any rationale for doing this other than bald self-interest and the hope that people will indeed trigger fees by missing payments they weren’t properly told about.
Fees For Credit Limit Increases
According to SmartMoney, some credit card issuers reserve the right to charge you fees simply for requesting a credit limit increase - and heavy fees, at that. According to their article on the subject, “in the fine print you’ll find you could also be charged a fee for requesting a credit limit increase that equals a whopping 50% of the increase amount.” In practical terms, this means you can be slapped with a $500 fee as soon as you get approved for your new $1,000 of credit. Certainly people should not be saddled with extra fees for a credit line they presumably were deemed creditworthy enough to afford!
Overdraft Charges
One of the most biggest complaints levied against banks is their enormously high overdraft charges. Typically, banks charge a standard fee (say, $30) for each time you swipe more than what is currently in your account. Now, in and of itself, an overdraft charge is not unreasonable. The screw job arises from how thoughtlessly the fees are applied. Since computers assess these fees rather than people, someone who overdrafts by 50 cents (likely by accident) gets slapped with the same fee as someone who brazenly overdrafts by $50. Some banks are kind enough to waive fees in the former example, but this is never standard procedure.
Allowing You To Overdraft By Default
Perhaps an even bigger problem than the amount or frequency of overdraft fees is how you are allowed to overdraft at all. Believe it or not, most banks allow you to spend more than you have by default - it is not a feature you have to request. Many will be surprised to learn that you actually have to visit a branch and request that overdrafting be disabled if this is your preference - and even then, tellers may attempt to talk you out of it or tell you how “uncommon” this is. What this amounts to is lots of overdraft fees for unsophisticated people who not yet experienced in balancing checkbooks, such as teens and college students. Perhaps the fact that some banks earn as much as $1 billion per year on overdraft fees (according to CreditDebtLife) explains why they make it so easy to spend what you don’t have.
“Teaser” Interest Rates
Banks and credit card companies alike are perennial perpetrators of the “teaser” interest rate. It works like this: a bank or credit card company states that you can get a credit card with a super-low rate (say, 1 or 2 percent) with little or no screening or paperwork. The average credit-seeking person believes they’re getting a great deal and signs up. But lurking beneath the glowing promises and sales pitches is the cold, hard fact that the super-low interest rate is temporary. After some period of time buried in fine print, that 1 or 2 percent rate climbs as high as 28 percent or more, usually with no warning to the card holder. The worst companies don’t even verbally state this at all, preferring instead to trust that you will discover it on your own in fine print. LendingTree discusses teaser rates on bank loans, as well as how to avoid being suckered in.
Sneaky Interest Rate Hikes
A similar problem lies in how sneakily some banks and credit card companies jack up your interest rates. Frequently, credit card agreements contain obscure (and no doubt hard to read) stipulations that skyrocket your interest rate - permanently - for such trivial offenses as being one day late on one payment. Such penalties effectively punish you for as long as you hold that credit card, even if you truly only messed up once. Even if your card has no such stipulations, you are still at the mercy of the credit card company’s ability to raise interest rates at any time, for any reason, including no reason. Such practices suggest that banks and credit card companies not only hope you mess up, but actively and zealously tempt you to do so.
Intimidating Collections Agencies
Having credit card debt is bad enough, but it’s nothing compared to the debt collections agencies that credit card companies hire. When the credit card company itself cannot persuade you to pay, a collections agency is called in to put real pressure on you. Once your phone number falls into the hands of one of these agencies, things can get very ugly, very fast. Common complaints include harassing phone calls at all hours, demeaning insults (including calling you a deadbeat) and threats to bring you to court unless you promptly pay up. The more collections agencies you get passed on to, the nastier your contact with them becomes. One legal advice website even claims that collections agencies file suit in hopes that you will default (which 90% of debtors do) because that saves them the trouble of proving your debt in court.
Unexplained Contracts
One of the most sinister tactics of all is the unexplained contract, where unpleasant provisions likely to arouse objections are simply not discussed at all by the person encouraging you to sign. The most frequent perpetrators here are gyms and health clubs. Bally’s Total Fitness, for instance, is known to push contracts that forbid you from leaving unless you become crippled, die or move someplace where there are no gyms. Yelp.com’s forums are full of people claiming that this was never explained to them and that they are now powerless to escape a gym membership they no longer use and cannot afford. Of course, the real injustice comes when such contracts are passed on to the aforementioned collections agencies, who pursue you just as ruthlessly as if you racked up reckless credit card debt.
Universal Default Rate Increases
Many will read about the tactics mentioned so far and conclude that they’re safe because they never overdraft, sign contracts they don’t read or fall for teaser rates. But you still might not be in the clear yet. Enter universal default rate increases, which entitle banks or credit card companies to increase your interest rate when you miss payments to unrelated creditors. Even if you don’t miss payments to anyone, you can still be the victim of a universal default rate hike. ConsumerAffairs.com lists several events that can trigger such a hike, compiled from surveys with customer support reps:
• Credit score gets worse: 90%
• Paying mortgage, car loan or other credit obligations late: 86%
• Going over credit limit: 57%
• Bouncing a payment check: 52%
• Too much debt: 43%
• Too much available credit: 33%
• Getting a new credit card: 33%
• Inquiring about a car loan or mortgage: 24%
Billing Cycle Double Charges
It is often assumed that you can only be charged interest on the outstanding debt you still owe. For instance, a $200 purchase of which you have paid $150 should only subject you to interest on the $50 you have still yet to pay. However, thanks to billing cycle double charges, this is actually not the case. Credit card companies can, in fact, dock you for interest twice on your monthly purchases. Any remaining debt the following month can be assessed interest-wise as if you still owed the full amount from the month before, rather than just what you currently owe now.
Applying Payments to the Lowest Interest Rate Balance First
Credit card issuers have full discretion in deciding how to allocate the payments you make to that. That is, if you owe money on several payments, the credit card company can decide to put the bulk of your monthly payment toward the balance with the lowest interest rate, thereby prolonging the time you remain in debt on the other, higher interest charges. This is usually invoked when debtors get a new credit card for balance transfer purposes. Someone transferring existing debt to a new card with a low introductory rate may find that their monthly payments go first to the older, lower interest transferred debt, rather than the current charges with higher interest they are presently making and might wish to pay off first.
