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.
What she didn't know she spent the money?
Depending on her husband's salary as a steamfitter while she raised the children was financially difficult,
Duh then maybe she and the sperm donor should have only had one kid.
I have Discover, pay them through my bank and get charged Nothing to do it.
It only makes sense to do so, yes?
I was just thinking the same thing. I was also thinking its probably a load of BS in many instances. In a sane country, the bigwigs at the credit card companies would be tarred and feathered.
They're why I made that mistake. With no value shown on them, I guessed what first class postage is and, for some reason, came up with 42 instead of 41. Doesn't help that my wife buys the stamps...
They got greedy, and I paid off the balance quickly after they raised the rate (because I was unwilling to pay that kind of interest), not before the rate change.
In retrospect, I don't mind, because it made me clean up my act a little financially.
Now I just use the card for things I would buy anyway (because it is convenient), and I get the 1% cash back, too.
If they don't like that, tough. They would be collecting a little interest now and then if they hadn't jacked my rates.
Thread won’t die...
“available credit on inactive accounts”
Having available credit and not using it is a bad thing???
Not me. I am a deeply flawed individual, and I have credit card debt.
They made a presentation to a group of us and then were to arrange a time for staff training. I came back from a meeting about a week later to find out that someone from Discover had been at my store and done the training - no appointment and it was on a very busy day.
I told them what to do with their cards - politely, of course.
People who paid off 100% of their monthly balance were being punished by having their minimum payment raised from 2% of the balance to 4% or 6% of their balance? When they already pay 100%? Wow, those credit card companies really know how to hurt a guy. LOL!
Is that a normal fee for a Discover card?
No. I pay on the Internet every month for free. Life is more expensive when you're stupid.
LOL
You'll have to show me where I said that once, let alone repeatedly. Thanks. Take your time. LOL!
That's a bad deal at 18% even before it was raised.
I agree that there should be specific justifications for raising interest rates not "cause we said so". But, more importantly, I think it should be illegal for *any* business to charge you both a late fee and interest. Charge one or the other but what cc companies do now is they charge you the late fee then hit you with interest. If you protest, they cheerfully remove the late fee but they are still hitting you with the additional interest from the late fee. That's simply unfair.
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