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.
pay down their balances — not off, I assume.
Half of everything is above average.
My son was an honor student & was potty trained at birth. We didn’t even have to teach him to pay his bills off in full each month. It was inborn.
Yeah....but the sanctimony spewed gets tedious....
As a whole, yes, but we’re not impervious to financial strife.
I have the card
I do too, they don't call me but I get at least one solicitation from them every week by mail to apply for their card.
Yeah, for paying online or by phone, they charge you extra.
Howdy!
If your bank has a pay-online feature, you can do it through them to avoid Discover’s fee.
Yep, financial problems happen - unexpected layoffs, big medical bills, etc.
There are the 4 rules of financial peace that help, but still don’t make you impervious.
Depends on what kind of average (”mean”,”median”,”mode”?).
;>)
Bank of America, Citibank, and MBNA are right beside Discover in terms of crookedness.
Are you talking about Discover? I've had one for a couple of years and they have never charged me anything for paying on line.
“Sometimes I even pay my neighbor’s credit card bills.”
Howdy neighbor.
tedious....copious....continuous....
Sadly, I agree on this point. The CC companies can raise your rate if even one bill on anything goes over 30 days due. So your phone bill got lost in the mail and went 31 days before it got to the phone company. Guess what, you are now a high risk and your 10% rate jumps to 24-30%. THat is just plain usery if there isn't a pattern of overdue bills. And if there was, the person would likely be declaring banckruptcy anywhay so the interest rate increase will only net the CC a bit more money, but not enough to offset the overall loss. All it does is make people with small credit problems get to have big problems becasue the new rates are outrageous. If the CC companies want someone to declare bankruptcy, this is the way to do it.
We have 10 cards and owe millions. We pay the minimum due, usually using one card to pay the other. Thankfully, they are not all due on the same day of the month.
Yeah, I’ve had a Discover card for years, which we use only for emergencies like car breakdowns and computer crashes/repairs, and my wife has found that they do charge the fee whenever you pay them online or by phone. She just uses our bank’s pay-bill feature to avoid the charge.
Senator? Is that you?
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