You recently purchased a washer and dryer for $1100 and now the store wants it back? It could actually happen. Many credit cards – even some of the store cards — permit the creditor to repossess items you purchased if you don’t complete your payment. This is based on an analysis done by CreditCards.com.
What it found
What this analysis revealed is that credit cards are generally called unsecured debts. This means that there is no piece of property used as collateral to secure them. The fact that credit cards are unsecured debt is often used to explain why their interest rates are more than other types of debt like auto loans and mortgages. In comparison, these are called secured debt because they are backed up by collateral such as your house or automobile.
A security interest
However, many cards including some of those medical credit cards can actually threaten to repossess your stuff. This is according to credit card agreements that have been filed with the regulators. In fact, there is in excess of 200 card agreements that give a “security interest” to the bank on items you purchase. This does not include secured cards you would use for rebuilding your credit. But store cards from Big Lots, Costco and Guitar Center that are backed by Capitol One contain this clause. So do some of the credit cards such as the high interest Wells Fargo Financial card.
These repossession rights are one of the clauses in credit card agreements that are typically overlooked. The problem is that most people who apply for credit cards do this based on their interest rates or their rewards and skip right past their other terms. When threatened with repossession people tend to say, “Wow! I had no idea I had agreed to that.” But they do agree to this whenever they sign a credit card receipt.
How this works
If you think that if you file for bankruptcy your household goods will be protected, this may not be the case. If you purchased an item with a credit card that has a purchase money security interest, this generally allows the lender to repossess the item until you’ve paid your entire balance. However, in most credit card contracts this security interest phrase is not explained. This can leave the threat of having the item repossessed very unclear. With several store cards backed by Capital One the security interest language provides the bank with a claim on even extended service contracts and insurance as well as merchandise. This term also assigns you part of the responsibility for taking purchases back. What this security clause states is that, “If we take back any good we may charge you our costs and require you to make the goods available at a convenient place of our choice as allowed by law.” For that matter, Capital One even says that the store has the right to contact you via personal visits – at home or at work.
Fortunately, threats to seize an item you purchased with a credit card are rarely followed up on. It is difficult to resell a person’s used possessions and repo men must have a court order before the sheriff can enter your house. The reality is that nobody wants used stuff back. But the possibility of having an item repossessed is treasured as a powerful collection tactic. Collectors often use this as a way to obtain a settlement check. This is because households that are debt strapped might rather pay up than risk losing their refrigerators, laptops, HDTVs or washer-dryer combinations.
What to do if threatened with repossession
How serious the threat of repossession could be will depend largely on the amount of money involved. In other words, the threat might be a lot more in the case of a $1100 washer-dryer combo vs. a $300 laptop. One bankruptcy attorney has recommended that if you are threatened with repossession you say you will pay the value of the item as used, which will be much less than the amount being demanded. And while the possibility of having that item repossessed is very low, a debt collector could threaten civil action or possibly even criminal charges.
Credit card fees raise costs
If you carry several credit cards with balances you need to be aware that there are some changes being made in fees that can increase your cards’ costs. For example, on its general-purpose card Citi did away with a deal on late fees it was giving those of its customers with low balances. Prior to this, first-time offenders had a $15 late fee if their balances were below $100. However, this now costs everybody $25 – regardless of his or her balances. In addition, there can now be fees if your credit limit is increased whether you asked for it or not. However, these fees usually are linked to subprime cards such as one from First Premier Bank with its 36% interest rate as well as a pre-account opening fee and an annual fee.
Complex fee structures
While the CARD Act has made it easier to understand credit card agreements in general, there can still be complicated fee structures that make it tough for consumers to understand what their cards are actually costing them. In many cases, people just aren’t equipped to decide what their cards are really costing them. The card agreements themselves are now a bit easier to understand. Since the year 2008, the average credit card agreement has shrunk by about 2100 words, which is 24% skinnier and readability has also improved. Despite all this, many consumers are still shocked when they get down into the fine print of a credit card agreement. The problem is that the credit card companies will always try to bury things. This definitely puts the burden on you as you must read all the fine print in a credit card agreement before you sign on the dotted line to be sure you understand what that card will really cost you.
One good example of why it makes sense to read the fine print is those 0% interest balance transfer cards. On the face of it they can seem like a very good option. For example, if you’re carrying $10,000 in debt on credit cards with an average interest rate of 19%, you could transfer their balances to a new one where you would pay zero interest for anywhere from 12 to 18 months. This means all of your monthly payments would go towards reducing your balance. If you were to heavy up on those payments you might even be able to become debt-free before your introductory period expired. However, if you read the fine print you’ll find that some of these cards have a balance transfer fee of $300 or even $500. Before you sign up for one of them be sure to do the math, as a transfer fee could easily reduce the amount of money you would save by making the transfer.
Just one missed payment
It’s also important to understand what happens to your credit score if you miss just one payment on a credit card. Most experts believe that this would lower your credit score by as many as 50 points. If you had a credit score of 600 this would drop you from having an “average or okay” credit score to having a “poor” score, which would make it more difficult for you to get new credit. Plus, it would likely increase your interest charges and even the cost of your auto insurance.
Credit scores rule
Whether we like it or not, our credit scores rule our financial lives. In fact, our credit scores are so important that the Discover Card has begun putting our FICO scores on its monthly statements. So if you have a Discover card, you should already know your credit score – for good or for bad. If not, you can buy it on the site http://myfico.com for $19.95 or get it free by signing up for a free trial of its Score Watch program. Or you could go to a site such as CreditKarma.com or CreditSesame.com where you can get a version of your credit score free – though it won’t be your true FICO score.