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.
'Yippee Ki--yaaa ! . . . FICO' . . . So said Bruce Willis.
The old 1960's song went kind of that way. But it was more like 'Obama Rama' or 'Obamarama . . . Ding Dong Ding . . . Blue Moon' . . . LOL ! LOL !
Credit card companies. You just gotta love 'em. They are the only people who make more money by shredding their incoming mail - - than by opening it. Go figure that. . . . The whole world has been been tipped sideways on its axis. Up is down today and down may really be up. With the new subprime rescue program going into effect. Oh, well. Whatever . . .
I own one credit card. I pay it off at the end of every month, sometimes sooner. And I never use it unless I absolutely have to, otherwise I pay cash.
I’ve been burned before, had bad credit, gotten out of debt and now lead a Debt Free Lifestyle.
Well, that’s good for you! Still, if folks just used cash more, and carried no balance month-to-month on any credit card or line of credit — that would be just as good, for all practical purposes.
Wow. Is that a normal fee for a Discover card?
It's the dry air. Don't walk on carpet while opening the mail.
There is only one good way to use credit cards. I use my credit card for everything, but I pay in full every month. I never carry a balance. I have always done it this way, even back when we had little money.
Translation: An ORGY of check writing to political campaigns, a windfall for lobbyists, and enough cash flow in outright bribes to buy Switzerland.
I just got an 8-1/2X14 six page document from my only card company. Yes, yes, the account is always paid up, but still...BURIED in the tiny rambling writ, was a Default Rate of 33%. Yes, yes, I should not care....but it reveals enough of that company so I am hunting for another card.
If there is a defense for that rate, I would like to hear it. A sucker will NEVER dig themselves out, and that's the idea, isn't it?
Citibank has been doing this also...guess they lost so much money lending to illegal aliens to buy houses in CA.
Our Unocal and Office Depot cards at work are getting onerous lately...we are going to shut the Office Depot one off.
Don’t worry...Everyone on FR PAYS their bill in its ENTIRETY every month...I know...they will be here to state that fact...soon...
I hate these sob story articles! There are a million reasons why this woman fails the due diligence test, but having said that, Discover Card is the WORST credit card company out there. They constantly change the rules to scam their users. I don’t know how many times I kept checking my rewards and the needle never moved, only to learn that they had mysteriously changed the amount of points you could earn.
I have abandoned Discover Card...but I didn’t have to call Carl Levin to try and sell my sob story.
Here here! Bills PIF’d every month! I am proud to say I have managed I’ve gotten to the point where I don’t spend more then I make and have zero debt! It can be done... (but UGH some hard work involved)
Great minds think alike.
I have a credit card and hardly ever use it, but if I do I pay it off right away.
I just thought you should know. :-D
I have a Discover charge and don't know what the interest is since I pay the balance each month. I have never been charged an "internet fee" and if they ever charge me one, I'll quit doing business with them.
We pay our cards off each month and have actually stopped using them at all because I find their practices so distasteful. I think if any area needs reform it would be credit card companies. They are a bunch thieves constantly changing their terms, they are predators and masters at marketing their evil.
Same here. If it can be put on the plastic, I do it. My CC company pays me back 1-2% on all purchases and I have 25-55 days of interest free purchases. Works for me!
Sometimes I even pay my neighbor's credit card bills.
Everyone on FR has “above average” children, perfect teeth, no debt, and their &#*# don’t stink....at least they always show up to relay that fact....hahaha
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