Minnesota Attorney General's Office
1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101
M - F 8 am - 5 pm
Credit Cards and Debt
As the economy falters and costs of everything from food to utilities to health care continue to rise, many people are forced to turn to credit cards to finance day-to-day living expenses. In 1968 Americans owed $8 billion dollars in credit card debt. In 2010, Americans owed approximately $790 billion in credit card debt! In 2009, Americans paid an estimated $20.5 billion in credit card fees alone, such as late fees, over-the-limit fees, and the like. Not all credit cards are the same and there are steps that consumers can take to limit the cost of credit and its impact on their finances. Attorney General Lori Swanson provides the following tips to consider when dealing with credit cards:
Read the Contract to Understand the Terms and Conditions
You should closely review any contract and terms before you agree to take out a credit card from a given company. Do not take for granted the promises and sales pitches from telemarketers, credit card companies, or other advertisements. The credit card industry spends billions of dollars per year marketing their products. Do the research and know what you are buying.
Negotiate the Best Rates and Terms
Borrowers may not know they can negotiate the interest rates they pay and the terms of the contract. Whether you are applying for a new credit card or dealing with an open account, shop around to determine where you can get the lowest rates and the best contract terms. Remember, not all credit cards are the same when it comes to interest rates, fees, or other terms. Even if you already have an open account, you may negotiate with your credit card company to lower your rates and improve your terms. Don’t be afraid to ask for a better deal. If another company is offering you better rates, your credit card company may be willing to match or lower their rates to keep you as a customer. To negotiate a lower rate, just call your credit card company and ask for one. The worst the company can say is “no.” But if it agrees, you could save hundreds or even thousands of dollars per year.
Know Your Rights Under the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act)
Congress enacted new provision for credit card holders pursuant to the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (“CARD Act”), which amended the Truth In Lending Act. These protections became effective on February 22, 2010 and include:
- Credit card issuers can only charge over-the-limit fees if the cardholder “opts-in” and affirmatively gives their consent to be charged such fees;
- When a consumer applies for a new account, the credit card issuer must analyze whether the cardholder has sufficient income or assets to make the minimum payments on the line of credit. If the new applicant in under the age of 21, then the application must be in writing and the applicant may have a private cause of action if the credit card issuer failed to analyze the cardholder’s ability to pay;
- Cardholder payments must be posted to the account promptly, and the payment due date must be on the same day each month;
- If the cardholder pays more than the minimum amount due, the credit card issuer must apply the excess payment to the balance with the highest interest rate before applying the payment to lower interest rate balances.
How Can Credit Cards Charge Such High Interest Rates in Minnesota?
Many consumers wonder why some credit card companies are allowed to charge such high rates in Minnesota, despite the State’s usury laws. Actions by the federal government (and affirmed by court decisions) have allowed financial institutions to charge customers across the country the highest rate allowed in the bank’s home state. Through this “exportation doctrine,” financial institutions can “export” from their home state higher rates than Minnesota would typically allow from a financial institution that is incorporated in Minnesota. As a result, some Minnesotans who do not pay close attention to the terms and conditions of their credit card could wind up paying interest as high as 30% or more.
What is “Universal Default?”
Some credit card companies monitor your credit report to watch other accounts or debts that you may hold to determine your “credit worthiness.” Under some contracts, a missed payment on an unrelated account with a different company can trigger a “universal default,” resulting in the credit card company increasing your rates or changing your terms. The CARD Act placed some restrictions on universal default, by limiting the ability of financial institutions to raise rates due to “universal default” strictly to future credit card balances (i.e. the company can not raise rates retroactively on past balance items). The CARD Act also requires credit card companies to provide 45 days notice to a consumer regarding any potential rate change due to a “universal default.”
Consumer Tips for Cardholders
Once you have decided on a given credit card and opened an account, you may still be subject to rate increases, changing terms, or other costs that you did not expect. To maintain good credit standing and best manage your credit card debt follow these tips:
- If you can afford it, pay your full balance on time every month. This is the best way to avoid a high cost of credit and will also help you build your credit rating. Even during months where you are not able to pay the full balance, make sure you pay on time to avoid pricey late fees. Try to pay more than just the minimum payment whenever you can.
- Limit the number of credit cards you have. Your credit score determines how much you pay for credit. If you have too many credit cards, your credit score may be lowered. This may make it harder to obtain other credit when you try to buy a car or home.
- Closely review your statement every month. Watch for changing terms, increases in fees, or interest rate hikes. In the event of any such changes, call the credit card company to negotiate better rates and terms. In this age of Internet purchases and identity theft, watch for unauthorized purchases. Under the federal Fair Credit Reporting Act, your liability is limited to pay for such charges if you report them in a timely manner. • Know your rights. If you have questions or concerns about credit cards or financial institutions, contact the Minnesota Attorney General’s Office. Additional resources include:
Minnesota Department of Commerce
85 East Seventh Place, Suite 500
Saint Paul, MN 55101
Office of the Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street, Suite 3450
Houston, TX 77010
Toll free: 1-800-613-6743
Office of Thrift Supervision Consumer Programs
1700 G Street NW
Washington, DC 20552
Federal Deposit Insurance Corporation
3501 Fairfax Drive
Arlington, VA, 22226
Federal Reserve Board
Office of Minnesota Attorney General Lori Swanson
1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101
TTY: (651) 297-7206