Two More Dirty Card Tricks!

Credit-card companies have plenty of tricks up their sleeve. For example, they've come up with new twists for these two favourite ploys.

Earlier today, thanks to the help of a sharp-eyed Fool reader, I exposed the latest hideous card trick in The Debts That Wouldn't Die!In the above article, I explained how some credit-card companies are cutting minimum monthly repayments to the bone, which means higher interest bills for borrowers -- and debts which can last longer than a lifetime! However, crafty bankers are always coming up with new tricks to trap unwary cardholders, so it pays to keep your eyes peeled. Here are two twists to watch out for:1. Treating balance-transfer fees as purchasesWhen you transfer an existing debt from one credit card to another, many card issuers will charge you a balance-transfer fee when they take on the debt. Typically, this fee will be 2% of the value of each transfer, with a minimum fee of £3 and a maximum fee of £50, although some firms charge uncapped transfer fees -- ouch!However, the wise-guy marketing types at a couple of credit-card issuers have spotted a sneaky way to squeeze a little more money from transfer fees. As I warned in this article, Egg treated one cardholder's £50 balance-transfer fee as a purchase, rather than part of the special-rate transfer deal itself. This allowed Egg to charge its full standard rate for purchases of 15.9% APR on this £50, making the lender an extra 62p a month.Another helpful Fool reader, David B, contacted me today to warn that MBNA has caught on to this trick, too. So, before transferring balances to Egg or MBNA cards, check carefully to establish whether your transfer fee will accrue interest at the full standard rate. If it does, complain bitterly and threaten to take your business elsewhere. Let's thwart this little wheeze before it catches on!2. The rising cost of payment protection insurance (PPI)I've said it before, but I'll say it again, because I'll never tire of saying it: payment protection insurance is the biggest financial rip-off in the UK.PPI covers your repayments on a mortgage, personal loan or credit card if you are unable to work because of accident, sickness or insurance. Also, PPI for credit cards and personal loans pays off your remaining debt if you die. Although PPI sounds like valuable protection (indeed, there are around 25 million policies in force), it is utter tripe, thanks to widespread over-charging, poor policy design and low claims payouts.For example, according to the Association of British Insurers, we spend £10.2 billion on motor insurance in 2004, yet claims benefits and costs came to £10.3 billion. Hence, insurers made an underwriting loss from selling motor insurance (but they made money by investing these premiums).On the other hand, I reckon that between 80p and 90p of every pound spent on payment protection insurance is pure profit, the lion's share of which goes to the lenders who sell it. Thus, we may spend £6 billion on PPI this year, but receive benefits worth under £1 billion. What a massive con!As a former industry insider (to my eternal shame, I worked in the PPI market for more than a decade!), one thing I've noticed is that the cost of credit-card PPI has been slyly creeping up over the last twelve months. It used to be the case that a typical credit-card PPI policy would cost 70p per £100 of outstanding balance per month, which equates a monthly charge of 0.7% of your balance (even if you always pay in full every month).However, 0.7% is now the lowest premium rate charged by the leading card issuers. In fact, the average premium rate is now 0.77%, and some card issuers cheat their cardholders out of a ludicrous 0.9% per month (1%+ for store cards) for this rip-off cover!To be brutally frank, these companies could almost halve the cost of this cover and still make a decent return on their investment. However, they prefer to charge a fortune for card PPI, and deviously raise their premium rates every year or so, confident in the knowledge that we poor, dumb punters don't know any better.Aha, but I've let the cat out of the bag now, haven't I?More: Find your perfect plastic in our Credit Card centre | Get better protection in our Insurance centre.