Detriments to customers

[edit] High Interest and Bankruptcy

Credit cards with low introductory rates are limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. As all credit cards assess fees and interest, some customers become so encumbered with their credit debt service that they are driven to bankruptcy. Credit cards will often stipulate a default rate of 20 to 30 percent in the event a payment is missed. That is, if a consumer misses a payment, the rate will automatically increase to a very burdensome level. The practice of universal default, in which the default rate is applied to a card in good standing merely by missing a payment on an unrelated account, greatly magnifies this harm. This can lead to a snowball effect in which the consumer is drowned by unexpectedly high interest rates. Further most card holder agreements enable the issuer to arbitrarily raise the interest rate for any reason they see fit.