Protect yourself if your credit-card account is sold
You may be in for the shock of higher rates, fees and stricter rules. Here's what you can do.
By Ginger Applegarth

If your mortgage or auto loan has ever been sold to another lender, you know that there is usually not much to fear. The only thing that changes is the name you put on your check and the address where you send the money. But if you're one of the 20 million Americans whose credit-card accounts were sold last year, and you haven't checked your statements lately, you may be in for a severe case of credit-card shock.

When it comes to credit cards, all bets are off. Your new lender is free to:

• Raise interest rates, not just on new charges but also on existing balances, subject only to maximum interest rate laws (called usury laws) that still exist in a few states. An item you may have purchased with one of those 5.9% introductory interest rates can balloon to 20% or more with a new lender.
• Increase late fees for payments that are received after the due date. More and more credit-card companies are imposing higher late fees, sometimes to $30 or more.
• Reduce or eliminate the grace period for late payments. If your payment is due on the fifth of the month, and your check arrives even one day later, you're stuck with a late fee, even if the prior lender gave you a three- or four-day grace period.
• Reduce the interest-free period during which you can pay off your entire balance without being charged any additional interest. You may be used to an interest-free period of 25 days after the closing date of the statement. Your new lender might offer only 15 or 20 days, or eliminate it altogether, so that interest will be charged from the date you make a purchase.

You might not have heard much about this problem before because it's a relatively new phenomenon, caused in large measure by competition. Profit margins fell to less than 4% in 1998, caused in part by savvy credit-card shoppers who would transfer accounts in return for those low introductory rates. The result was that many financial institutions have decided to get out of the business. Thirty-two million credit-card accounts (owned by 20 million people) were sold in 1998, four times as many as in 1996. That does not even include accounts that changed hands due to bank mergers and acquisitions.

Banks are willing to risk alienating their customers because they can get a "bounty" of up to $200 for every credit-card account they sell, and they are counting on customers not paying attention to the fact that they may be handed off from one bank to another.

Of course, every credit-card sale does not automatically result in less attractive terms. The new bank may in fact be offering a better deal than the existing one.

There are a number of things you can do to protect yourself:

• Read your bill every month and check the bank name, interest rate and inserts talking about the changes in terms. It is very easy to write a check for the minimum payment and not look at the bill, especially if you're carrying a balance and would rather not think about it.
• Read every piece of mail that comes in from your credit-card company. You may be inundated with so many special offers for added insurance, "upgrade" offers to gold or platinum cards or free airline miles, that everything that doesn't look like a bill gets thrown into the trash unopened.

• Pay attention to those credit-card solicitations you get in the mail; 3.5 billion were sent out last year and many of them have very attractive terms, such as low introductory rates or guaranteed maximum interest rates for the entire period of time you are paying off a transferred balance. If you've got good credit, you can probably get a better deal elsewhere.
• Cancel the card if your credit history or current debt load is keeping you from qualifying for a new card, or if the company that bought your account has jacked up your card's interest rate. You will still have to pay off the existing balance at that higher rate, but at least you avoid the temptation to make new purchases with the card and get yourself further into trouble.
• Complain to the bank that bought your credit-card account. Profit margins are so low that credit-card companies are less willing to negotiate, but it is worth a try. Tell them you will switch your account to another bank if they cannot improve the terms.