Over the past few weeks, we’ve had some very active discussion over decisions by credit card issuers to reduce credit limits, increase interest rates, increase minimum payments, close unused accounts, and add new fees. To provide some context for these discussions, I thought that it would be worth taking a closer look at an example of a Cardmember Agreement.
So… I dug around in our file cabinet and located one such agreement from Chase, with an effective date of 10/2004. As such, these terms probably aren’t 100% up-to-date, and don’t necessarily apply to you even if you have a Chase card. I’m mainly posting this information here to give you an idea of the sorts of protections that card issuers build into these things. Regardless of the issuing bank, you’ll find that these sorts of agreements say much the same thing.
I should also note that this particular agreement spans twelve (!) pages, so I’ll just skimming through and hit some key points. Pay particular attention to the ninth clause — it essentially says that they can change the agreement whenever they want. Here goes…
- 1. ACCEPTANCE OF THIS AGREEMENT
…You will be bound by this agreement if you or anyone authorized by you use your account for any purpose, even if you don’t sign your card.
In other words, the first time you swiped your card, you agreed to be bound by these terms. I hope you read them so you knew what you were getting yourself into…
The next section, 2. USING YOUR ACCOUNT, covers permissible transactions, authorized users, etc. Of particular interest is the following passage about credit lines:
- At our discretion, we may increase, reduce, or cancel your credit line, or the cash advance portion of your credit line, at any time. However, if you have not asked us to do so, we will not increase your credit line. A change to your credit line will not affect your obligation to pay us.
So yes, they can reduce your credit line whenever, and and for whatever reason they want. Interestingly, Chase won’t (or at least didn’t back when these terms were first written.
The third section, 3. PAYMENTS, talks at length about where to send your payments, minimum payments due, etc. This is relevant to the recent Chase revelation that they’re increasing the minimum amount due for a subset of customers. But remember, they reserve the right to change these terms whenever they want, so doing they were well within their rights to do this.
The fourth section, 4. FINANCE CHARGES, details their standard APR calculations, how their variable rates work, the fact that they can apply a “default rate” if you don’t honor the terms of the agreement, etc. They refer to the “Rates and Fees” table that is available separately for details surrounding the actual rates. But again, everything listed here and in that table is subject to change.
The fifth section, 5. OTHER FEES AND CHARGES, talks about late fees, annuals fees, overlimit fees, etc. If it’s a fee, it’s covered here. And because they have the right to change the agreement (yes, I realize that I’m starting to sound like a broken record), they can add, subtract or modify fees whenever they see fit.
The sixth section, 6. DEFAULT/COLLECTION, talks about what happens if/when you stop paying. It’s short and sweet, and you really don’t want to run afoul of them here.
Next up, and relevant to the fact that some issuers have started closing dormant accounts…
- 7. CLOSING YOUR ACCOUNT
You may close your account at any time. If you call us to close your account, we may require that you confirm your request in writing. We may
We may close your account at any time or suspend your credit privileges at any time for any reason without prior notice except as required by applicable law. If we close your account, we will not be liable to you for any consequences resulting from closing your account or suspending your credit privileges.
If you or we close your account, you and any authorized users must immediately stop using your account and destroy all cards, checks or other means to access your account or return them to us upon request. You will continue to be responsible for charges to your account even if they are made or processed after your account is closed and you will be required to pay the outstanding balance on your account according to the terms of this agreement. In addition, to the extent allowed by law, we may require you to pay the outstanding balance immediately and charge the default rate if we don not receive payment within the time we specify.
So… They can shut down your account for pretty much any reason, and the balance must be repaid under “the terms of this agreement” (which they can change at any time and for any reason; see below). They can also require immediate payment “to the extent allowed by law.” I’m not sure what the laws in this area say, but I suspect that their giant team of attorneys knows them inside and out.
After that comes an enormous section called 8. ARBITRATION AGREEMENT. This section spans more than two pages, and it essentially says that disputes will be resolved by binding arbitration, and that such arbitration replaces the right to go to court. There are some instances when it seems like you might be able to take legal action against them, but they’ve done a pretty good job of painting you into a corner. They even go so far as to rule out class action lawsuits, saying that any instances of legal action will be limited to individual actions.
And now for the big one… The one clause that rules them all…
- 9. CHANGES TO THIS AGREEMENT
We can change this agreement at any time, regardless of whether you have access to your account, by adding, deleting, or modifying any provision. Our right to add, delete, or modify provisions includes financial terms, such as the APRs and fees, and other terms such as the nature, extent, and enforcement of the rights and obligations you or we may have relating to this agreement. Modifications, additions, or deletions are called “Changes” or a “Change.”
We will notify you of any Change if required by applicable law. These Changes may be effective with notice only, at the time stated in our notice, in accordance with applicable law. Unless we state otherwise, any Change will apply to the unpaid balance on your account and to new transactions. The notice will describe any rights you may have with respect to any Change, and the consequences if you do or do not exercise those rights. For example, the notice may state that you may notify us in writing by a specified date that you do no want to accept certain Changes we are making. If you notify us in writing that you do not accept the Changes, your account may be closed (if it is not already closed) and you will be obligate to pay your outstanding balance under the applicable terms of the agreement. If you do not notify us in writing by the date stated in the notice, or if you notify us but then use your account after the date stated in the notice, you will be deemed to accept all Changes in the notice and to accept and confirm all terms of your agreement and all Changes in prior notices we have send you regardless of whether you have access to your account.
Okay, they can change your terms whenever they want, and they’ll only notify you if required by law. And guess what? These changes will likely apply to your existing balance as well as to new purchases. You may be allowed to opt out (in writing) from changes to the agreement, in which case you’ll be allowed to repay under the terms of the existing agreement. It’s unclear to me how these things apply to promotional offers, as they’re not explicitly mentioned.
The are a number of additional sections, including the following:
- CREDIT INFORMATION
- NOTICES/CHANGES OF PERSONAL INFORMATION
- TELEPHONE MONITORING AND RECORDING
- ILLINOIS CARDMEMBERS: INFORMATION SHARING
- ENFORCING THIS AGREEMENT
- GOVERNING LAW
- FOR INFORMATION
- YOUR BILLING RIGHTS
However, there’s nothing particularly germane in them, so I’m not going to delve into them.
The bottom line here is that credit card issuers make (and can change) the rules, so be sure to read them carefully before agreeing to them. While their changes might seem unfair or arbitrary, they’ve gone to great lengths to ensure that they have the right to make them.