New Way To Hide Outrageous Credit Card Interest Rates

January 13, 2010

By Terry Smiljanich:

Credit card companies are engaged in a binge of interest rate hikes on their credit cards, thanks to the lack of any usury protections or limitations on how high they can hike such rates. Interest rates of 24%, 36%, and even 79.9% are more and more common.  These abuses have been the focus of several Consumer Warning Network stories, as you can see here, here, and here,

In the face of the continued exposure of their practices and public shaming due to the taxpayer bail-outs they received, these institutions apparently are looking for new ways to hide their hideous, historically high charges.  Case in point: Macy’s, which seems to have found a nifty way of doing so.

Take a look at one of its “Platinum Star Rewards” account statements. There at the top of the front page the annual percentage rate for the account is shown as 24.5%. That’s pretty steep, but there’s more.

Also included on the first page is a $2.00 “Interest Charge,” with the following explanation: “If you pay your New Purchase Balance of “x” dollars by “y” date, your Initial Interest Charge of $2.00 on your Revolving Account will be refunded on your next statement.”

So, in addition to the 24.5% interest charge, Macy’s is also taking out $2.00 up front and keeping your money for a month. It will refund it next month, if you pay off your new purchases.

You might wonder what effect this fancy footwork has on the actual interest rate you are being charged. Well, if you go to the bottom of the second page you will find this statement:

Macy's 47% Interest Rate

Yes, you saw it right.  47.04% interest!! “As a result of the Minimum INTEREST CHARGE of $2.00 being applied to your Revolving Account, the actual ANNUAL PERCENTAGE RATE charged on that account is 47.04%.”

So, as it turns out, the “Annual Percentage Rate” of 24.5%, shown on the front page of the statement, is not the “actual” percentage rate, which is really 47%. What does that make the percentage rate shown on the front, the “pretend” percentage rate?

Not only does Macy’s misrepresent the “actual” percentage rate, but it also gets to hold onto your $2.00 for a month, even if you eventually pay off your balance. Granted, $2 bucks is not a lot of money, but adding up the total number of revolving accounts Macy’s has, it could add up to a nice little source of extra income.

Credit card companies should be ashamed of the interest rates being charged in today’s market. They, at the very least, be honest about their usurious rates.