Tips can help consumers fight back against budget-busting fees

By Don Mecoy

Published: June 15, 2008

Banks and credit card companies build income through fees, which they are required to disclose. Unfortunately, they often make those disclosures through a morass of statements and fine print that can be difficult to obtain or comprehend.

In fact, the U.S. Government Accountability Office in January said banks don't do very well at providing customers with information about fees and charges, and noted the regulators rarely examine such procedures.

"We were unable to obtain detailed information about fees and account terms and conditions at over one-fifth of the branches we visited and, in many cases, we found inconsistencies among branches of the same depository institution,” the GAO report noted.

Credit card providers also have fallen under the scrutiny of Democratic presidential candidate Barack Obama, who last week called for tighter controls on credit card companies.

Harvard law professor and Oklahoma native Elizabeth Warren, who has written several books on credit and personal finance, joined Obama in his call for new restrictions.

"We have a bunch of regulators in Washington who see their job as protecting banks and see you folks as little profit centers for them,” Warren said.

Roger Beverage, chief executive officer of the Oklahoma Bankers Association, said fee disclosure statements are notoriously difficult to understand, even as the number of fees increases. These are tough times for banks and other firms in the financial services sector, and those companies have instituted new fees and have begun to charge for services they previously did for free.

"I don't think there's any question the last eight to 10 years or so you will see a trend upwards in the area of noninterest income, which represents the series of fees that banks have charged,” Beverage said.

Beverage, an attorney who concedes that he struggles with the "legalese” that comprises the disclosures, said customers need to talk to their banker or credit card provider and ask lots of questions.

"Most people don't ask,” Beverage said. "Most people are like me. For whatever reason, they don't want to admit they don't understand.”

To help consumers deal with the infamously complicated disclosure statements, and to bridge the gap until regulators tighten up disclosure policies, we're offering some tools for consumers seeking to avoid the bite of fees and charges.

•Don't be afraid to ask for a break. Did you bounce a check or miss a payment? Do you think the fees for your mortgage payments or your credit card debt are too steep? Depending on the circumstances, a banker or credit card provider might waive or lower charges. "What's the worst that could happen? They could say ‘no.'” Beverage said.

• Don't get mad. File a complaint. Bank managers prefer that you bring a problem to their attention and give them a chance to make it right rather than take your business elsewhere. If the first person you deal with can't find a satisfactory solution, escalate your complaint to a supervisor. While regulators can't intervene, they can help you understand your consumer rights.

• Shop around. Many consumers will drive blocks out of their way to save a dollar or two on gasoline, but do little comparison when purchasing financial services. Look at what is being offered by your bank and its competitors. With a mortgage, credit card or other loan, you may be able to negotiate the interest rate and other terms. But be cautious of "teaser” interest rates that can balloon over time, or that include significant fees.

•Save those confusing disclosure statements. "When it comes to information about the terms of your credit card, be a pack rat,” said Janet Kincaid, FDIC senior Consumer Affairs Officer. That's where you will learn what the interest rate is and how it can change, if there is an annual fee, and the cost of special services such as cash advances. Stay on top of fee increases by reading and saving the disclosures sent in monthly statements of other mailings.

•Understand billing cycles and how they can bite you. Credit card companies use a variety of billing practices that few consumers understand but that can potentially be very costly. Scrutiny from the public and regulators has prompted some large credit card issuers to stop using some of these tactics, but they haven't yet disappeared. Practices include:

Two-cycle billing means that if you pay your credit card bill in full one month but then pay only a portion of the bill the next month, your interest charges ultimately will be based on two months of card charges rather than one.

Payment allocation involves cards with multitiered interest rates. For instance, the card may charge a low rate on a balance transferred from another card, a higher rate on new purchases and an even higher rate on a cash advance. If you pay only part of your monthly bill, card companies typically apply the payment to the balance with the lowest rate first, while the highest-rate balance continues to accrue.

Universal default is the ability of a card issuer to boost a customer's interest rate because the customer made late payments to other lenders or had an overall decline in a credit score — even if that customer paid the credit card bill in full and on time.

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