Posted on 12/10/2007 12:34:11 PM PST by 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.
I’m also a conservative union member! And a federal employee too.
When the hammer of government regulation comes down on them, they will cry, socialism, unfair restraint, government intrusion. And they will probably get lots of conservatives, especially those who have proven their greatness by paying off every balance every month, to agree and to stand up for them, EVEN THOUGH THEY ARE THE BIGGEST CROOKS IN THE COUNTRY.
Watching all these creative loans over the past few years made me pay off and cancel our cards. I keep one open for emergencies only and I watch that card on paper and online like a hawk.
Thanks for all the info you post.
Boy, you took the words right offa my fingers...
Capital One raised my interest rate. Bad credit elsewhere? No.. because I paid my card down to quickly and they were not making ‘enough’ money off me.
What’s in yer wallet? Certainly NOT Capital One! Rip-offs.
Not me. I keep all my cards maxed out so that if some sucker tries to steal my identity, they're screwed...no available credit for them! :-)
Exactly. I have a Visa logo debit card. I earn flight miles, I have never had a problem renting a car, and it works everywhere. Cash is king, NEVER a problem with a missed payment or even a delayed payment because it’s paid when I use the card.
Sure, but you still have the $50 protection; my debit card was stolen once, and my account was pretty much wiped out. I notified the bank within 48 hours, and 48 hours later I had all my funds back, minus $50 (just like a credit card).
A debit card with a Visa or Masterard logo gets pretty much the same protection AS a Visa or Mastercard credit card. Legally, the bank can have a “deductible” of up to $500, but they typically give you the same $50 as with a credit card.
They did that to me too. Some excuse about “market conditions” caused them to raise everyone’s rates. I went from 9.9% to 15.4%.
9.9% fixed rate (so they said) to over 18%.
Did they offer to drop the rate to 9.9% again if you did two balance transfers from other credit cards or a car payment? As if!
I had no other cards and my car is paid off yet they still argued with me about closing the account. Unbelievable.
Most banks treat the debit card like a credit card in that respect now adays. 5 years ago, you would be correct.
I went over to Alamo Rental Car and they said that is a tactic of Hertz.
“Most banks treat the debit card like a credit card in that respect now adays. 5 years ago, you would be correct.”
Oh not really. With a debit card they have 48 hours and in the meantime you have no money. If the bank decides to they can say you are screwed. With a credit card its their money and they would have to take you to court to force you to pay, assuming all else failed.
Sadly, you may be right. Honestly, it wouldn’t surprise me.
If they pay more their default rate will go up, I think I am right about that. Is that what the CC companies want?
This isnt always true.
Credit card companies have been offering For the life of the Transfer Balance credit card deals. I have taken them up. They were desparate for great credit business. Two percent for the life of the transfer balance looks good. I put my mortgage on it. Bought a car on another one. I was paying way over minimum.
The cc companies got stuck with a lot of low interest debt and went to the tools in congress to increase the interest and payment rates. Saying it was all to HELP the consumer.
Now I dont have a problem with them changing New accounts or even NEW transaction. But to permit these companies to change the rules midstride...that is beyond belief.
Interest rates are going up.
Payment rates are going up to 4% of the balance.
Now if I didnt have these outragous oil bills I could manage.
Talk to your congressional tools today becuse there are going to be a lot of defaults that have nothing to do with mortages rate defaults and everything to do with Congress.
Perhaps they need big warning labels on credit cards: “WARNING... using this card will result in bills”.
Memo to everyone that pays their balances off in full each month: I don’t give a crap.
Woe to any person who suffers a severe health crisis. Medical insurance may be canceled very easily. Unpaid medical bills may cause severe financial hardship that finally breaks the camel's back.
Blame Congress, not Bush. All our dishonest congress critters want is to live high on the hog in DC, party like drunken libertines and to retire with all their benefits intact.
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