Credit card costs burden the underprivileged

WASHINGTON, D.C. (8/14/07)--A new study by Demos, a non-partisan research center, says that the effects of credit card deregulation over the past few decades has forced a disproportionate amount of low-income people to pay extremely high fees and interest rates (demos.org).

The federal government began deregulating the credit card industry in the late 1970s and deregulated more in the mid-1990s. The effect on consumers is plain: The highest reported annual percentage rate (APR) was 22% in 1990 and skyrocketed to 41% in 2004.

Promotions such as low APRs, rewards programs and cash-back incentives are created to attract customers, but someone has to pay for those rewards. Often, the burden falls on those who already are in a financial bind by way of high interest rates, excessive fees and hidden traps.

Key findings from the Demos study:

• One-third of cardholders have interest rates more than 20%.
• People who have a household income below $25,000 and a credit card balance are more than twice as likely as households earning $50,000, and more than five times more likely as those earning $100,000, to pay interest rates of more than 20%.
• Of cardholders, 15% of African-Americans, 13% of Hispanics, 11% of single women, 7% of whites, and 6% of single men pay interest rates of more than 20%.

Penn State University offers these suggestions to reduce the cost of credit cards.

• Understand fees before you begin charging. Your card may seem like a good deal from the get-go, but even one small mishap--say, a late payment--could change your interest rate and fees for the worse.
• Go to your credit union for a credit card. Experts agree that credit unions are one of the best places to get a credit card because they charge lower fees and have lower interest rates.
• Scrutinize your bill each month for tricky fees. No, it's not fun, but credit card companies may slip in unfair fees that are hard to catch. If you find a fee that you think is unfair, call the customer service line and request that it be taken off.

courtesy of cuna.org