Aug 01, 2013 Sean Albert
Consumers across America are starting to ditch traditional credit cards and checking accounts for alternative credit services. The trend is largely a result of exorbitant fees levied against credit card users that can be costly for consumers on modest budgets.
According to BillGuard, there are many hidden charges that credit card companies include in contracts. From automatic renewal fees to trial membership charges, credit cards are riddled with complex rates that are purposely disguised.
The source used data from Aite Group that analyzed 4,817 credit cards used by American buyers in 2012. Overall, hidden fees cost consumers $14.3 billion last year.
The source reported that about 35 percent of all credit card users had to foot the bill for a hidden fee last year. On average, these charges cost each American card holder $215 annually. Moreover, one in ten had to spend over $500 to address these fees.
"In addition, issuers risk causing cardholder dissatisfaction when charges aren't identified. This leads to customer attrition or a shift in card spending preferences," said Ron Shevlin, an analyst with Aite Group.
The most common hidden fees that are costing card holders are "free-to-paid" charges, BillGuard noted. This is when a card holder receives a product or service for a free trail period, only to be charged if the consumers fails to cancel or return the offering before a specific timeframe that usually is not disclosed or is hidden.
Credit card rates spiking
Instead of making it more advantageous for consumers to use credit cards, major card companies are increasing the rates they charge for their products, making the payment tools even more difficult for average consumers to manage.
Data from CardHub.com showed that the 0 percent introductory rate on most cards now only lasts 9.94 months on average, according to Consumer Affairs. That's a 3.4 percent drop from the first quarter of 2013.
The source noted that a lack of healthy competition in the industry is the primary factor behind the rate spike. With such a narrow market, many credit card companies are finding that they can survive even when they increase their interest rates.
Alternative credit services and products such as ACH cards are growing in popularity as many consumers and vendors see these tools as cost-effective payment solutions. Many electronic transaction companies are investing in such technology, which is creating a vibrant, competitive market, unlike what has been seen with credit card firms.