Pew report: Do credit cards stink?

The Pew Charitable Trusts published a pretty damning report Wednesday about how credit card issuers continue to be "unfair or deceptive" with their products -- despite legislation set to curtail these practices in 2010.

In fact, due to card issuers' egregious behavior (rate hikes, limit cuts, canceled cards, etc.) in the past year, several lawmakers are calling for portions of the Credit CARD Act to go into effect this December -- two months ahead of schedule. Sen. Chris Dodd, in fact, wants an across-the-board interest rate freeze to apply to all credit card issuers and introduced legislation proposing such.

Here are some of the major findings taken from the study of about 400 credit cards issued by the 12 largest banks and 12 largest credit unions:

• 99.7 percent of bank cards allowed the issuer to raise interest rates on outstanding balances by changing the account agreement unilaterally -- up from 93 percent in December 2008.
• 90 percent of bank cards had penalty interest rates that could be triggered by late payments or over-limit transactions. All but 10 percent of these cards had penalty repricing terms that would qualify as "hair trigger" under Federal Reserve guidelines (triggers of one or two late payments in 12 months).
• 95 percent of bank cards allowed issuers to apply payments to low interest balances first, hampering a cardholder's ability to pay down higher interest balances. The other 5 percent did not disclose the issuer's policy.

Yes, people understandably are angry, especially in light of how these changes in credit card terms affect credit scores, credit reports and the ability to pay back outstanding balances during a time when having debt is particularly stressful (think layoffs). I also understand that banks are trying to navigate their way out of the mess they made by having little or no lending standards. It's a difficult time, for sure.

As a consumer, the lesson is apparent: Don't let your debt load get so large that you can't pay it off quickly if necessary. If you carry debt, you are at the mercy of the lending institution holding that debt. It's that simple.

An overriding observation in the Pew report is that credit union credit cards' penalty rates, APRs, cash advance and late fees are more reasonable. In fact, when one of my major bank cards notified me recently of not only an increase in my APR, but also a switch from a fixed to a variable rate with a fixed minimum set rate (which is so convoluted that I had to have someone explain it to me very slowly), I paid off the balance and am now using what was my backup credit card -- issued by a credit union.

But I'm not done. I plan to pay off the balance on the credit union card this weekend. So my emergency fund will be a bit smaller, but in the end, I'm really, really tired of worrying about credit cards. I'd rather just write about them.