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 was afraid that if I didn't post this, there might be some out there who would make the assumption that I carry a balance.
Any video that starts a Bush bash and then uses Elliot Spitzer to bolster its message has no credibility.
I used to work for a credit card company, and I can tell you that not a single scrap of mail was ever thrown away. I’ve seen correspondence scawled on napkins and scribbled on payment coupons. Anything that couldn’t be scanned by machine was scanned by hand and routed appropriately.
On the other hand, there were some decidedly underhanded things that went on, but those are stories for a different thread.
There is absolutely no correlation of the two unless the account is directly affected. Jacking interest rates to slave levels does nothing to assure an account will end up in anything but default.
I’ve never had Chase or Citibank charge me anything for paying on line. For anyone that charges for the ‘privilege’ or don’t have the option, I use my bank’s bill pay service.
Not us
Not us! Wish we did. We’ve paid it off twice but we still run it up more than I wish we did. I buy my Epson ink and some books on my card. Hubby ran it up a lot last year buying gas. I couldn’t believe it when I saw the statement. He’s been better this year.
!
consider yourself blessed. I have 11 grandchildren and rarely see any of them, even those who live 15 miles away. Everyone’s ‘too busy.’ I’ve got two I haven’t seen in 17 years (divorce). 3 others live in Alaska and I finally got to see my youngest this summer. I would give anything to have all of them over at Christmas, believe me.
Mine is through our credit union but I pay 14% interest.
Want a few of mine?
Just kidding but I do have 4 adult children, 12 grand children and 2 great grands.
“raising interest rates on good customers even if they pay down their balances, on time, every month”
Ah, I see, I thought you misunderstood the poorly worded article.
why?-—they still make money from the companies we do business with—don’t worry, they make money both ways
In the News/Activism forum, on a thread titled Credit Card Bills Deliver a Shock, Continental Soldier wrote:
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.
...and in approximately 14 months, that hammer will come down, guaranteed. They brought it upon themselves. No amount of sowing money around Washington will prevent it.
I guess I have to be one of those “snobs”.
I dont have a credit card nor have I ever.
If I want something, I pay cash. If I cant pay cash, then I don’t really need it.
If I fear an emergency, I have an emergency fund.
I will admit I’m clueless when it comes to all the interest rate games and “pay off at the end of the month” dramatics that people are referring to, and in a way, because I choose to live without consumer debt, I’m glad I don’t understand.
Oh not really. Had mine stolen and there were no such problems with the bank.
Rental card companies also put a hold on your credit card, typically about $500, as a deposit.
Ask a CC or mortgage company. I don’t make the rules.
Freezing your credit files would stop them cold. No more checks on your credit. I think this is brilliant.
Send them over! Christmas is so empty without children in the house. I remember how fun it was to shop for them and to see them open their gifts from Santa on Christmas morning. I miss that.
I have three adult sons, 11 grandkids and so far (as I know), no great grandchildren. I wish I could see them more often.
Right. “ You owe too much money and are a risk so we are raising your interest rate, even though you have never made a late payment, so you owe more money and will never get out of debt.” Great logic!
The solution is to close all unnecessary credit accounts, and keep the balance paid off every month on the one remaining card.
Well, freepers are predominantly conservative so that's to be expected. Well all except the last part....
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