Credit card complaints received at Smart Balance Transfers have continued to decline. After the implementation of major pieces of the CARD Act on February 22nd, credit card complaints dropped considerably. This pattern has held over the past three months.
Much of the decline in credit card complaints is likely due to the fact that credit card companies are unable to engage in the rate raising and penalty pricing that fueled record complaints in 2009 and into the first months of 2010. Improvements in the economy and related decreases in credit card charge-offs may also be keeping credit card companies at bay.
Another reason credit card complaints are down may simply be the fact that credit card companies are holding off on the introduction of annual fees and rewards program reductions to prevent backlash from still angry customers. Once the dust has settled from last year, credit card companies might begin testing new annual fees or reduced rewards value.
June has not been without complaints, though they have been few and far between. An emerging source of credit card complaints stems from payment allocation. Under the CARD Act, credit card companies have the ability to apply minimum payments to whatever balance they choose. In most cases, this will be the lowest rate balance on a given account.
For example, if a person has $1,000 at a 0% balance transfer promotional rate and $1,000 at a 14% interest rate, minimum payments will likely be used to reduced the $1,000 being charged the 0% rate. Similarly, if a person has a cash advance balance with a 29.99% interest rate and a regular balance at a 14% rate, minimum payments will reduce the latter, lower rate balance.
Payment allocation issues impact consumers who pay only the minimum to a much greater extent than those who pay substantially more every month, as all payments above the minimum must be used to reduce balances with the highest interest rate. Thus, consumers who are simply making the minimum payment are more likely to encounter this problem than those who pay a larger portion of their balances on a monthly basis.
-Jeffrey Weber
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