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.
Yep. Apparently we are eminently credit worthy judging by the number of mail solicitations I receive, and my wife and I have a few credit cards, but honestly, the Discover Card is far and away the most underhanded of them all and I told my wife that we will simply not use them ever again. Nothing specific, but jacking up the rates, secretly reducing the reward points to the company's maximum advantage. Are they allowed to do this under the law? Sure they are. But go financially rape someone else Discover Card.
9 times out of ten it’s better to use the bank’s bill-pay feature as long as it’s free or less than the cost of doing it through the creditor’s own website. Cleaner and easier that way too.
Well they do get a percent or so of every purchase you make.
They are making it tougher to pay on time though. I typically only have about a 5 day window from the time the bill arrives to when the payment is due. So what I used to do was maintain a balance so that I never had to worry about paying the bill. About 6 months ago the CC company sent my balance back a few days after the bill came and I almost ended up missing the payment deadline. The CC companies really want us all to be paying interest.
I was laid off and ran up some bills. Now I have 2 jobs. fun!
“With the advent of debit/check cards, why would somemone need a credit card if they pay their balance every month?”
Because if someone steals your CC # you can dispute it. If they steal your debit card they have your entire checking account. Sure some banks will recover money lost with debit card fraud but a CC has less risk.
My description could fit 66% of the senators. LOL.
Someone dumb enough to pay an $8 internet transaction fee every month, instead of laying out 42 cents for a stamp does not get my sympathy.
When someone steals your debit/check card, they are stealing your actual money out of your actual bank accounts.
When they steal your credit card, they aren’t.
That’s the difference, and it’s huge, imo.
Helloooooo, Neighbor!
“There is only one good way to use credit cards.”
I just take one or two of the twenty or so CC offers I get in the mail each week, apply for new ones...use ‘em up and then toss ‘em when they don’t work anymore.
Just like magic.... more offers appear every week...and I start the whole cycle all over again.
Works for me.
I don’t understand why banks charge for Internet transactions. It would seem that it would cost less to process an electronic transaction, than to handle bills paid by mail, and therefore, banks should encourage more people to pay online.
One card I paid off a decade ago sent offers every week until they finally sent notice they were giving up on sending notices and the offers come only every second week now.
I think something like 15% of the people with credit cards pay their balance off in full every month. Everyone I meet, online or otherwise, seems to belong to this 20%. Or their disingenuous, but that’s surely not the case is it?
I cut all my cards up in 2003 and haven’t looked back. I travel a LOT too, but all on debit.
Ha! $8 Indeed.
“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.”
How does this help the CC company? They don’t charge any interest to such customers, so what is the point of jacking up the interest rate?
Because they can.
I have a Discover card that I’ve paid on line for years and I’ve never been charged anything to do so.
Why would you pay 42 cents for a 41 cent stamp?
Never been charged.
I’m already living in May 2008, when the postal rates go up another penny.
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