What's hiding in the fine print?


As consumers, we get into the habit of agreeing to terms and conditions without reading them. We click on "I agree" when we install new software without even scrolling through the document. And when we get a new credit card in the mail, we glance at the daunting booklet of fine print that comes with it, and then file it - likely in the recycling bin.

"I would say that, on average, nobody reads the stuff that comes with their credit cards. Nobody," says Brian Betz, a debt counsellor with Money Mentors. "It's just too convoluted."

He says there's also an "immediacy bias" at play. Even though we know we should read all that fine print of a card agreement, if it doesn't affect us immediately, we tend to not worry about it.

Your card agreement includes the details about your credit card, such as interest rates or late fees. Interest rates and fees don't affect you if you pay off your balance monthly, and you likely think there's not much you can do about it if you carry a balance.

However, you should take a magnifying glass to your card's terms and conditions. In fact, doing so could save you money.

"Reading and understanding not just how your card works, but the features and benefits that you have enrolled in and are paying for, is important," Betz says.

You may determine that you would be better off with a card with different features and benefits than the one you carry - for example, a card with a lower interest rate, if you carry a balance, or one that offers cash-back or travel rewards if you don't have a rewards card.

Here's some of the important information in the fine print of your card agreement.

1. Information box.
"Credit card issuers have to give consumers an information box that clearly displays some of the important information," says Lynne Santerre, media relations officer with Financial Consumer Agency of Canada (FCAC).

"If you understand what's in the information box, it would definitely help you make better decisions and make better use of your credit cards," Santerre says.

The box includes:

  • Initial credit limit. Issuers cannot raise your credit limit without your permission, Santerre says, but you can ask for a limit increase.

  • Interest rates. Note that it's interest rates - plural. Purchases, cash withdrawals and balance transfers are often treated differently and are charged different interest rates.

    If you signed up for a promotional rate, which is often the case with balance transfer offers, the information box will show how many months it covers.

    "What they also have to tell you is if your interest rate will increase if you make a late payment, go over your limit, make a payment that's returned, or don't meet some of the terms and conditions of the cardholder agreement," says Santerre.
  • Grace period. "Federally regulated financial institutions that issue credit cards have to provide a minimum 21-day grace period," says Santerre. "The grace period begins on the last day of your billing period."

    Again, Betz says, it's important to note that not all purchases and withdrawals are treated equally.

    "Cash advances accrue interest from the day you take out that advance, whereas a consumer purchase will not accrue interest until the grace period ends," he says. At least, that's the case if you pay the balance in full.

    "If it's not paid by the due date, then interest reverts back to day one, too," says Betz.
  • Determination of interest. This explains how interest is calculated.

    You're not generally charged interest on the first monthly statement after a purchase, says Santerre, "However, if you don't pay your balance for previous purchases on your following statement, you're charged interest back from the date you made the purchase."

    This is because the interest is based on the average daily balance and charged monthly.

  • Minimum payment. The minimum monthly payment is usually the greater of $10 plus interest and fees, or a percentage of your outstanding balance - typically 3 per cent, says Santerre.

  • Foreign currency conversion. If you travel, make sure you understand how the foreign currency conversion works for your particular card.

    "Some transactions are converted directly into Canadian dollars," says Santerre. "Others may be converted in the U.S." This means that there will be two currency conversions if you are travelling abroad: first into U.S. dollars, and then into Canadian dollars.

    "The foreign currency conversion charge is applied after the purchase is converted to Canadian dollars," she says.

  • Fees. If your credit card charges an annual fee, this will be disclosed in the information box, as will any other fees you might be charged when you use your card.

    "This can be a fee for cash advances, a fee for if they go over their credit limit, a fee if they transfer their balance or if they want an extra copy of their monthly statement," says Santerre.

2. Features and benefits.
"Every card has features and benefits, and all too often a consumer will value features and benefits that they don't benefit from," says Betz.

He recommends reviewing your card's perks to see if they are really benefits for you.

"The features and benefits come at a cost, which is usually a fee that you pay annually or an increased interest rate," he says.

If you don't need - and use - your card's features and benefits, you can eliminate the annual fee or reduce the interest rate by switching to another card. Your card issuer may even offer another card with fewer bells and whistles - and a lower or no annual fee.

You'll also want to review your terms and conditions to find out what happens to your reward points if your account is not in good standing.

"If you are getting a card because of that feature and benefit, then you should be doing your research to understand what could potentially happen to those points [if you are in arrears]," says Betz. When you get caught up, you can revisit the fine print, he says.

Other features and benefits may not affect you day-to-day - such as extended warranties or travel insurance - and you may forget you even have them. Because of this, Betz recommends reviewing your card's features and benefits every year.

"Just as we say you want to review your finances, your assets, liabilities, etc., on an annual basis. That is part of that," he says.

3. Unauthorized charges.
With most credit cards, you have zero liability in the case of unauthorized or fraudulent transactions, Betz says.

"But there are certain time limits that apply to it," he says. "You have to understand that for your particular card, how much time do you have to report these things?"

Find out what the reporting requirements are, and make sure you audit your monthly statements so that you can resolve any discrepancies quickly.

In addition, the fine print of your card agreement also will spell out what your responsibilities are with respect to choosing a PIN or password, using the card online, and authorizing others to use your cards.

With credit cards, as with other agreements you enter into, it's important that you do your due diligence to ensure you understand what you are getting into.

Even if you don't read the entire terms and conditions document, Santerre says, review the information box so you understand the key features of the card.

In addition, review the benefits and features you have signed up for, whether or not there is an additional cost for them.

"Knowing where you can access the cardholder agreement is the most important thing," says Betz. This way you can review them whenever circumstances change, good or bad. "It's about understanding the features and benefits and investigating to determine which best meet your needs as your situation changes."

See related: Your options if your issuer changes your agreement, Be wary of online advertisement tricks and traps, Understanding the basics of credit scores
Published July 17, 2017

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