Like the iTunes End User License Agreement, very few people are likely to read all the provisions of their credit card agreement. Though a majority of it is benign provisions and definitions that make sure the issuer is protected against loopholes, many aspects of it can have a profound impact on credit card users and their finances. All agreements can be accessed through an online database maintained by the Consumer Financial Protection Bureau (CFPB). After reading through dozens of such contracts, we found 4 of the biggest clauses worth highlighting.
You may end up not qualify for a signup bonus, even if you reach the required minimum spend. Most major issuers limit your ability to qualify for a signup bonus on one particular credit card account to once every 24 months. Some, like American Express, only allow one per lifetime. You don't even have to get the bonus in order to lock yourself out of it. For example, imagine open up an account with card #1 and close it a few months later without ever getting any signup bonus. If you then get card #1 again a year later, you will no longer be eligible to receive the bonus. This small print exists to prevent people from signing up for a card, grabbing the bonus, canceling their account, and repeating the process over and over again.
Your account can be suspended randomly without any reason. Some issuers reserve the right to shut down your account at any time -- even if you haven't missed any payments or broken any terms. You may, for example, have your account shut down if you aren't actively using it. In the past, banks have also used this provision to close accounts of individuals who abuse loopholes, or have used the accounts to fund illegal activities.
Mandatory Pre-Dispute Arbitration. Nestled away in most credit card contracts is a small section saying you agree to bypass a judge or jury in the event of a dispute between you and the card issuer. Instead, any disagreements must be settled by a third-party arbitrator. This agreement also prevents you from joining class action lawsuits against the issuing bank. Recently, the CFPB has taken aim at mandatory arbitration clauses, claiming they are unfavorable to consumers. According to Richard Cordray, head of the bureau, "by inserting an arbitration clause into their contracts, companies can sidestep the legal system, avoid big refunds and continue to pursue profitable practices that may violate the law and harm consumers."
Payments are allocated to the balance with the highest interest first. If you pay less than the full amount due on your credit card bill, the payment is applied to the balances with the highest APR first. This is crucial to understand if you are trying to pay down debt with deferred interest. Using a balance transfer credit card, consumers can save serious money -- our research found that an individual indebted $9,036 making $400 monthly payments can save as much as $1,042 over the lifespan of their debt. However, if you were to make a new purchase onto the balance transfer card, your payments would then be applied towards the purchase, since it has the higher APR. Thus you'd be eating away into your own saving potential. Federal law mandates that the you can request payments be applied towards the deferred interest balance.
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