Credit Card Bills Deliver a Shock

Portland Oregonian ^ | 12/05/2007 | Laurie Kellman

[ex-Texan]

WASHINGTON -- Check your holiday credit card bills closely.

Some credit card companies are raising interest rates on good customers even if they pay down their balances, on time, every month. The reason they cite is that the customer's credit rating has fallen elsewhere.

That was a rude surprise to Janet Hard, a stay-at-home mother of two teenage boys from Freeland, Mich.

Depending on her husband's salary as a steamfitter while she raised the children was financially difficult, Hard said. To keep the family's finances in balance, Hard said she paid more than the minimum payment on her Discover card every month, plus an $8 Internet fee.

Or so she thought.

In February, Hard noticed that despite her payments, the balance was "barely moving."

A phone call to Discover solved the mystery, but not the problem: The company had increased her interest rate from 18 percent to 24.24 percent after running a spontaneous credit report that showed her other credit card balances and available credit on inactive accounts put the family at a higher risk of defaulting on their payments.

Most stunning, $3,478.39 out of $5,618 in payments had gone to Discover for interest accrued over the previous two years, Hard told the Senate Permanent Subcommittee on Investigations. On a monthly level, about $176 out of her $200 payments went to finance charges. In the past year alone, Hard had paid $2,400 but reduced her debt by only about $350.

"My husband and I feel as though we have been robbed," Hard told the panel Tuesday. "As we struggle to overcome this financially, we also are struggling to overcome it on an emotional level. Some days, this feels more difficult than the paying off of our balance."

The panel's chairman, Sen. Carl Levin, D-Mich., is sponsoring legislation that would restrict changes in credit card interest rates to certain instances -- such as at the conclusion of a low, introductory rate period, contracts that have variable rates and when a cardholder violates the agreement with the issuer.

"When a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit card issuer should have to do the same," Levin said.

Major credit card companies such as Citigroup Inc. and JPMorgan Chase & Co. have said they will discontinue the practice of raising a customer's interest rate based solely on a credit report. Capital One said its long-standing policy is not to change customers' interest rates if their credit scores go down.

But congressional efforts to make all credit card companies discontinue the practice is running into a buzz saw of opposition from the banking industry.

Consumer risk profiles change as underlying costs to the lenders change and interest rates must reflect that, said Ken Clayton, managing director of card policy for the American Bankers Association.

"Important criteria"

Not considering changes to a cardholder's credit rating "is like taking the batteries out of a smoke detector," said Roger Hochschild, president and chief operating officer of Discover Financial Services. "It's important criteria."

Hochschild and other top credit industry executives told the Senate panel that cardholders are appropriately notified of any changes, given time to opt out and pay off the card at the old rate, and to contact the credit bureaus whose reports may have spurred the rise in rates.

Consumers have other options, they added, such as contacting their credit card company and making new arrangements that might include fee waivers and new payment schedules.

Sen. Norm Coleman, R-Minn., said Congress should be mindful of unintended consequences by imposing new federal regulations on the industry, such as the return of high annual fees and less access to credit for people with questionable credit records.

With Americans weighed down by some $900 billion in credit card debt -- an average $2,200 per household -- practices of the very profitable industry have been ripe for scrutiny by the Democratic-controlled Congress. The Federal Reserve is paying attention as well and planning to require credit card issuers to give customers at least 45 days' notice before raising interest rates and to provide clearer information on fees.

Levin assembled anecdotes from consumers across the country that had one thing in common: All say they received surprise credit card interest increases -- to as much as 30 percent -- despite their history of prompt payments. None knew that the interest rate increases were triggered by lower so-called FICO credit scores.

[Graybeard58]

You left out a biggie. Cosigning on someone else’s loan.

[SaxxonWoods]

“So she is voluntarily paying 1.5% extra, every month, just to save a stamp. And now she is whining because her interest rate went from 18% to 24.5%.

Some people are just too stupid to be permitted to handle money.”

---

My first reaction when reading the story was to think the headline should read:

“Woman shocked to ‘discover’ she is an idiot.”

[art_rocks]

“Someone dumb enough to pay an $8 internet transaction fee every month, instead of laying out 42 cents for a stamp does not get my sympathy.”

Normally I would agree with you but some CC will not cash the check until you have passed your due date. Paying electronically ensures that you know when the CC received the payment. She should use her bank to pay electronically.

[RockinRight]

Yes. And it’s a double-whammy:

Almost everyone knows that cosigning a loan can put negative marks on your credit if the other person pays late.

What most people don’t know is that it also counts towards your debt-to-income ratio when you want to apply for credit of your own. I had to decline a loan for a client of mine because the $459 monthly payment on their credit, for their son’s car loan which they cosigned for, had to be counted against their own debt-to-income ratio and made it appear that they had too much debt to qualify for the loan they wanted.

[Graybeard58]

Reminds me of any of a number of televison program threads. Always a few who state that they got rid of their television around 1967, and haven't watched anything since.

Stereotyping is an irritant to me. Public school teachers, my conservative daughter is one. Cops get bashed regularly by some, my conservative son is one. Union members, I am a retired one and have never voted for a democrat in my life.

[Rightly Biased]

Even Better I don’t have a credit card to pay off every month its easier that way

[ex-Texan]

The credit card companies are only playing the same games that mortgage companies play. In business, everybody want to get rich quick today.

It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.

I suspect that such a group first sat down and tried to figure out how to protect their financial interests and avoid criminal liability. And then when they agreed on the plan, they decided to sell it as "helping working families stay in their homes." That's why these meetings were secret, and reporters and the public weren't invited.

Yada Yada Yada. But what do I know anyway? Check my older posts.

[Vinnie]

I've had one for a couple of years and they have never charged me anything for paying on line.

My Chase and Citibank cards don't charge if you pay several days in advance.

If the payment must be posted that day in order to avoid a late charge then they charge a 'service' charge.

I pay almost of my bills online. The one exception is the power co. Progress Energy wants to charge me $4 for the privilege of using online payments.(I want a paper bill )
I mail that bill.

[RockinRight]

I don’t get the cartoon.

[RockinRight]

Never mind, yeah I do.

[DooDahhhh]

We used a credit card for years for big things (my husband is a custom home builder) have rarely paid any interest at all and flew to Europe first class last year using that cards frequent flyer miles.

[ozzymandus]

Why, yes, I do pay my credit card balance off every month. Does that make me a bad person?

[RockinRight]

Nope. I think the point was the pretentious, holier-than-thou attitude of some about this subject.

[valkyrieanne]

Personal Finance needs to be taught at every high school. It’s amazing even how many college graduates don’t know the first thing about personal finance.

They teach personal finance at my kids' high school, but I think I am going to have them take the course online (i.e. so I can brainwash them about no-debt living.) If personal finance is managed the same way school sex ed is, forget it. It's important that classes NOT use propaganda from banks, credit card companies, etc., trying to convince kids that Debt is Good. We have enough problems with teachers telling the kids that they should go into debt for college, etc.

[valkyrieanne]

With the advent of debit/check cards, why would somemone need a credit card if they pay their balance every month?

Three reasons. First, security. If your credit card is stolen, and you call, you are only responsible for the first $50. If your debit card is stolen, and they have your PIN, they'll clean you out.

Two, some merchants are scum. They will sell you things that don't work, or won't return them for a refund. Then you have to dispute a bill. You have the leverage of informing the credit card company, and if they see your side of it, you don't have to pay. With a debit card, the merchant/vendor already has the money.

Three, cash back. Our card pays 2% back. It's money in our pocket instead of theirs. Maybe there are debit cards with cash back too, I dunno.

[RockinRight]

Debt can be used in a responsible and profitable way. Just a manner of how it’s done.

[Jacquerie]

The CC company takes on more risk with low credit score customers. Such customers have a higher default rate and thus should pay more. Same thing with mortgages. Being casual with debt repayment is costly.

[Graybeard58]

When I had Sprint, they wanted to charge a fee for paying in the office. One of the many reasons I don't have Sprint anymore.

[Vet_6780]

Debt is the only way we have to create new money, ie growth. So new debt is good.

If everybody paid down their debts, the economy would quickly go into a steep depression, ie all asset prices would be forced down.

That's why the Fed tries to maintain a net inflationary policy.

Right now we are experiencing asset deflation. The Fed should be dropping rates faster.

Inflate or die.

[olivia3boys]

I’ll sanctimonously state (this is very true):

I pay off credit cards in full every month
I don’t have TV
my children are above average

But. . .my teeth are terrible and my #$%^& does stink!