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Credit Card Firms Hurry to Raise Rates
Some top 30% as new rules loom
Credit card companies are rushing to increase interest rates to historic highs of more than 30 percent, cut credit limits, and add new fees, even for customers who pay their bills on time.
Credit card companies are rushing to increase interest rates to historic highs of more than 30 percent, cut credit limits, and add new fees.(AFP/Getty Images/File/Joe Raedle) Lenders are making the moves in advance of tougher federal regulations for credit cards scheduled to take effect on Feb. 22. The new rules will limit how companies can modify credit card agreements, specifically prohibiting them from retroactively raising interest rates and fees on existing balances.
US Representative Barney Frank, the Massachusetts Democrat who chairs the Financial Services Committee and is a leader in the effort to revamp credit card policies, said banks have "abused'' the nine-month period granted them to re-tool their practices.
"I didn't think they would be as blatant as they were about doing this,'' he said. "There's no justification for raising rates retroactively. This is really just a way for them to make more money.''
As a result of ever-escalating rates and fees, cardholders like Carole Hoppe Mezian of Norwood dread the arrival of their monthly statements. Hoppe Mezian carries a $10,000 balance on her Discover card and says she sometimes can't make payments on time. Since May, her interest rate has ballooned from 14.99 percent to 29.99 percent, and the minimum due on her September bill was $771, mostly in interest and penalties.
"I might have been better off going to the Mafia and getting a loan that way,'' she said.
Matthew Towson, a Discover spokesman, said the company is willing to work with Hoppe Mezian to help manage her debt.
A study by The Pew Charitable Trusts, an independent nonprofit, found the median interest rate advertised by most credit card companies in July 2009 was 13 to 23 percent higher than rates in December 2008.
To counteract the barrage of hikes, a bill now under consideration in Congress would move up to Dec. 1 enactment of the new rules. The House approved the accelerated plan Wednesday. But the bill's prospects in the Senate appear dim; many senators say a shortened deadline would cause banks to issue fewer cards, making it more difficult for consumers who most need credit to obtain it.
After years of complaints from consumer advocacy groups about credit companies' pricing practices, some rules have already been changed. For instance, portions of the new law enacted in August require banks to give customers 45-day notice of any changes in an agreement. Consumers can opt out of an impending increase, keeping their card at the lower interest rate, but only until the card expires. After that, they must apply for a new card. They can also avoid the interest hike by closing the account and arranging to pay off the balance at the lower interest rate.
Ken Clayton, a senior vice president of the American Bankers Association, a trade group, said recent rate increases were not an effort to circumvent the new regulations, but the result of massive losses faced by the credit card industry because of the recession. More than 10 percent of all credit card customers have defaulted on payments this year, he said. "There's a shared risk here,'' he said. "Credit card companies are making loans to people every day and the rates people are charged are affected by whether people are paying them back.''
There are no limits on how much interest a credit card company can charge, and the new law, passed in May, will not change that. Some consumer groups called for a 36 percent cap on credit card rates, but Frank said legislators did not institute a limit because most credit card companies would immediately "go up to that rate.''
While credit cards are becoming more expensive, interest rates set by the Federal Reserve have been at record lows for a year, allowing banks and credit card issuers to borrow money more cheaply. The prime rate - the amount banks charge their best customers to borrow money - is 3.25 percent. Credit card companies charge far above that because borrowing on a card is considered riskier.
At Bank of America, one of the biggest credit card providers in the country, credit card revenue dropped slightly between 2007 and 2008, from $14 billion to $13.3 billion. The bank received more than $40 billion in federal bailout money.
Lauren Bowne, a staff attorney at Consumers Union, the nonprofit publisher of Consumer Reports, called interest rates of 30 percent and above "astronomical.'' In the past, lenders have charged up to 30 percent, but typically only to risky customers. But such rates are now being applied to many more consumers, including those with pristine credit.
In addition to upping interest rates, banks are using fees to generate revenue, Bowne said, noting that some consumers have even been assessed fees for not using their cards often enough.
Betty Reiss, a Bank of America Corp. spokeswoman, said it implemented a rate increase after the new legislation was passed, but agreed not to raise rates again unless a customer is late two or more times in a paying a bill.
The upward trend in rates and fees has led to calls for even more regulation from consumer groups like the Industrial Areas Foundation. Spokesman Arnie Graf said many major banks are recouping lost profits at consumers' expense. Many of the nation's biggest credit card issuers are banks that benefited from billions in taxpayer money to help them recover from their own bad investments, he said.
"These are essentially dead banks borrowing from the government at nearly zero percent and loaning it out at 29.99 percent,'' Graf said. "Hell, anyone can do that.''
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59 Comments so far
Show AllCollection agencies are on a tighter leash than credit card companies. Let the bills go to a collection agency, pay a small amount each month regularly and your credit rating will IMPROVE, not get worse. In other words, take away the credit card company weapon. Fear. Don't be afraid of a collection agency. Always contact the collection agency in writing. Never talk to them on the phone. "Go legal" on them. That's how you beat an extortionist.
Good advice Ghandighost. All of us need to start thinking of ways to beat the system at their own game! Nothing but NOTHING is geared toward helping the people!!!! This is all about the monied helping themselves.....period!!! What must they think of us? What are citizens to them? Just "consumers" like piglets....growing fat and them being led to the slaughter. The sooner the better!
Also, a collection agency is authorized to negotiate with you and the least you stand to cut off the bill is 25% - more if you can prove hardship.
US Representative Barney Frank:
"I didn't think they would be as blatant as they were about doing this,''
** DUMBASS
Yes, talk about a totally non-credible statement. Even people who have fewer cognitive resources than most would have had no trouble predicting that outcome.
And to think good ol' Barney is now 'representing' me. Feh!
Yeah, if they had only been more subtle in their larceny, Barney would have no trouble defending it.
I have duly noted the unprecedented interest and fee hikes (in spite of record low intersts (the fed rate is efectively zero) on all my mostly-unused credit cards. And this is happening after the citizens bailed them out.
The bankers are redefining the meaning of their old word "chutzpah".
"But the bill's prospects in the Senate appear dim; many senators say a shortened deadline would cause banks to issue fewer cards, making it more difficult for consumers who most need credit to obtain it."
As the government gets more ruthless, look for more instances of the "we're screwing you for your own good" justification. Much like, "We're refusing to raise the minimum wage for your own good; otherwise you'd be laid off."
What makes me crazy is that even the credit unions seem to have gone predator. My one pays 0.1% on deposits, but just announced that they'll charge 18.0% for credit as from December. If I've done my sums correctly (never a guarantee) they'll be charging 180X more than they're paying!
It used to be that credit unions existed to *prevent* predation, not practice it.
Yep. Credit Unions are becoming almost as bad a banks. Mine is doing the same on interest rates for savings accounts vs credit cards PLUS charging a $25.00/ck. fee on overdraft protection.
If you will recall, it used to be fairly difficult to join a credit union. But (since Reagan?) credit unions have been deregulated and the rise of "community credit unions", where anybody can join have sprung up like mushrooms after a rainstorm.
"Our" government/corporate financial complex are to the point to where they don't make any attempt at all to hide their greed and abuse of the American public. It's as if they are almost daring "we the people" to do something about it. Well, perhaps we should call their bluff. France circa 1790's anybody?
I get 1% on savings and pay 5.75% on my line of credit at my Canadian credit union.
Show off!
Joe
this is a timely article for me...the Bank Of America card that my wife and I had held for a while, with the lowest rate, and, therefore, the highest balance, sent us a letter raising our rates significantly...I called them, found out I could close the account and pay the balance at the current rate, and did so...
I just received an incredibly similar letter from US Bank, and I will probably go ahead and close that account, too...
This is being done due to 'overall losses', not personal infraction...PEMCO pulled this on me years ago with auto insurance, and I never went back...
Use it up
Wear it out
Make it do
Do without
In Monopoly, much of the game, and subsequent, subjective ruling during play, revolves around the Banker, and the processes associated with the Bank...real life isn't that different...time to start a new game...
We retired our big bank Visa when they raised the interest rate for no particular reason. But you need a credit card sometimes, for instance when buying online or renting something. So we opened one with the Amalgamated Bank, a labor bank. Interest rate is below 10%. Amalgamated gave us a amall car loan many years ago when we had nothing but a steady job. Hope they still have some ethics.
By the way, my family has heard that little poem many times from me.
Joe
Debit cards work just like credit cards in that fashion. No need to pay interest.
Good point.
Joe
Debit cards are a bad idea, unless you have one that has no line of credit and almost no money in. The reason being, you have NO RECOURSE if some scumbag gets hold of your access information. They can clean you out, and there's nothing you can do.
I'm *very* careful with my one-and-only credit card, but nevertheless I've been phished once and had the data lifted at the vendor end once. In neither case was there much money involved (they just did little try-ons, which makes me think they were teenagers) but I'd have had no way to recover had it been my debit card instead.
I've never had a problem with that, but thanks for the warning.
That's not true. A debit card is backed by Visa, etc. not "checks." They have to back your claim of fraud and give you your money back. Your bank will go ahead and investigate (it's very easy for them to do so--they know everything about your purchase history) and if they find that, hey, all these purchases are at gas stations or other tip offs, they won't hold you up to anything. Basically, if it has Visa on it, you're safer than you would be if some tweakers stole your checkbook or applied for a loan in your name.
That said, some banks love to screw people who use debit cards. Like US Bank. Evil.
Oh yeah, mine's a Visa. I've never had one that wasn't.
We have always had a Viza Debit card.Recently someone tried to place an add to sell their car in a car magazine ,don't know how they got our info.(maybe someone wrote down the number when we ate and charged at a restaurant) The Wells fargo bank said they had the wrong phone number and wouldn't authorize it .They called us,then sent us a new card and closed out the old card.I was impressed.
I don't know if the law has changed or not, but several years ago, I had a debit card stolen and over $800 fraudulently charged against it. I was only held liable for the same amount as a credit card...$50.00.
That's *very* interesting. I don't know what the details are, but everything I've ever read says that credit cards are protected by law, but debit cards, because they're a virtual check, aren't. Perhaps it varies with the bank?
I did a little research, and it sounds like the real legal situation is somewhere in between my fears and your confidence :-) PIRG agree that there is a $50 limit, but say its a *voluntary* one, so apparently banks need not offer it. PIRG also say that it can take forever to get the money made available again compared to the quick reaction on a credit card:
http://www.pirg.org/consumer/banks/debit/debitcards1.htm
I have a Bank of America card I got at a nice low interest rate due to my membership in a college honor society. I canceled it soon after I graduated because I never wanted to be tempted to live beyond my means again, and have been making minimum payments since, but now thanks to my promotion I can start paying it off. Unlike God damned JP Morgan Chase, and Washington Mutual before Chase bought them, they never raised my interest rate.
The next big bubble.
RESIST! Retire your card. Get one from a credit union. Buy only what you need.
Joe
Absolutely!
"Buy only what you need" Better yet,whenever possible, buy used.It can be a lot of fun
When I was growing up these guys were on the street corners and were called loan sharks. At least they smiled as they stole your money.
Please read Ghandighost's post below. If you can't afford to pay off your card its excellent advice. The same for a medical bill.
To say again, NEVER discuss anything on the phone with them, send them everything in writing. Be prompt each month with your payment.
Quote; "These are essentially dead banks borrowing from the government at nearly zero percent and loaning it out at 29.99 percent,'' Graf said. "Hell, anyone can do that.''
This is why there should be state owned banks like the one in North Dakota,to loan money locally and keep the profits local....I have read quite a few articles about it and have to wonder why there isn't more discussion. Here is an example; http://www.webofdebt.com/articles/publicly-owned.php
Think local! Trickle UP!
"Hell, anyone can do that."
Silly you. You are so wrong. It takes TALENT. That's why executives get the big bucks - we have to retain the TALENTED.
Joe
Agreed. Get profits and greed out of the equation.
American credit card companies act like a combination of loan sharks and drug dealers. They tease new customers, often when they are their own for the first time (they love college campus'), then suck them into an almost unbreakable vortex of debt (in combination with college loans), then become absolute dastards when they cavalierly trash your credit rating. This happened to me with Citibank during the 80's. Needless to write, I have consistently shredded any "pre-approved" offers from them and every other South Dakota & Delaware (the credit card companies wrote the laws in those states, as the state law where the card is issued from applies -- not where the card is resided) based US credit card company.
Additionally, if they send you a mailer with a postage paid envelope, stuff it with as much scrap paper as you can and send it back...as they would then be stuck with the cost of the postage (which based on weight). If there is ever a business that deserves economic monkey wrenching, it is the credit card scam.
You might like to know that, although I had a long and ok relationship with Citibank, I recently paid off my credit card in full and ended my relationship with them. I now have a different card at a 3% less interest rate that I use only to buy gas and that I pay the full balance on each month.
now just a general comment:
For many, a credit card is insurance that they will have money when they need it. If their car breaks down they will be able to get it fixed and have transportation to work. Better alternatives might be a savings account (if at all possible) or some good friends who will drive you to work and home again.
Citibank were real wankers in my case. The card I had foolishly applied for on the campus quad was intercepted / stolen from my housing mail box. Even though I had suffered a theft and had the police report to prove it, they still considered the amount that was illegally charged on it ($100.91) as an R9 (a charge off) that killed my credit for the next seven years.
Enough years have passed, and now despite my prior experience with that company, they still persist in sending me "pre-approved" solicitations. That they are now one of the worse actors in the credit card business is wholly unsurprising. The horror stories about them in Consumer Reports are legion.
GREAT PLAN"Stuff it with as much scrap paper and send it back"I've been putting it on a bonfire.
Sioux Rose
If "lawmakers" had any decency or remote interest in representing their constituencies (not the lobbyists whoring for the corporations that finance their election campaigns) then interest rates on credit cards would be tied to actual interest rates with maybe a 10% leeway. So if banks now pay 2%, then credit cards cannot charge more than 12%. 10% is more than enough profit!
Of course the same "sky's the limit" perception applied to credit card usury is quite reminiscent of that mindset that says that CEOs and "banking talent" deserve 7 figure bonuses when they have been directly responsible for spreading financial loss and misery around. That's an interesting species of talent in my book.
With these priorities who needs a MAFIA? Organized crime has become a seamless facet of our government. Why rob the bank, when you can become one? (In the latter case, stealing with impunity.)
"Organized crime has become a seamless facet of our government. " –(Sioux Rose)
–A seminal fact that should never drift far from consciousness when discussing anything about America.
The genius of American politics is that it has legalized institutionalized criminality.
The concept of 'organized crime' as being synonymous with the American government no longer is merely a metaphor or something said with sarcastic irony; it has become literally co-extensive with American politics. This is by no means new, only now so unashamedly transparent that there is no need for dissembling.
The conflation of criminal enterprise and the American government can no longer be viewed as an extreme characterization or a contradiction in terms.
The very language used to describe the American state–the descriptive nomenclature,–has to be updated to reflect current reality. Without proper or accurate 'naming' things can not be seen unflinchingly as they really are.
When things are not 'named' properly serious thinking about the truth of things is compromised and rendered incoherent.
For example, in the aftermath of the unconscionable 'Arar' decision, one should not hesitate to describe the American state and its judiciary as one that has become officially fascist. Although this reality has been true for a long time, the 'Arar' atrocity is piercing in its intensity and transparence. It no longer does anyone much good to quibble over academic 'definitions' or pretend otherwise.
Fortunately on this blog, there seems to be an evolving, de facto consensus with fewer prevaricating stragglers reluctant to embrace the proper definitions. No serious politics can emerge in America without that consciousness.
–(Jill Bains)
Did you ever hear the "Threepenny Opera", Siouxrose? It makes the same points you are making. At the end Mack the Knife decides quit crime and go into "legitimate" business where you can steal legally and still be "respectable".
Joe
FRANK may be a dumbass, but he is also as crooked as the rest of them. We are no longer represented by our elected officials.
Doesnt matter. If the greedy little bastards want to hike rates on my cards, fine with me. I will just cut them all up. They want to play hardball? No problem.
I am not surprised by the "freedom" credit card companies have. VP Joe Biden, D-MBNA, then senator of DE pushed for passing the Bankruptcy Overhaul Act of 2005 that saw to it that credit card companies had more power.
jclientelle, debut, and DJM, great ideas. Our individual, local, and statewide efforts will be needed to protect us from an upcoming credit card bubble burst on top of an untrustworthy Congress who will most likely do nothing to reform or repeal BOA 2005.
Mairead, I haven't had any such experiences with my credit union.
kw
The only way to beat this system is to find a way of not overspending. The curious thing is that you can get accustomed to overspending, but this does not have to be. It really is a personal decision mainly (provided you are still in a position to change the situation): Reduce your spending so that you can reach your target: No more personal debt on a credit card. Why not live really cheap for a while and get out of this mess? For many this is possible, but why don't they do it ? Why do they still spend more than they earn and have ? Why would you consider a debt a normal situation ? Because they brainwash you into spending. Smart ones are not manipulated, stupid ones go and buy, buy, buy and believe they get their identiy from a brand. The only way to beat them is by leaving their system behind.
Yeah, I overspent like crazy last year, and I've learned the painful lesson from that. I'm not going to do that again.
kw,
You are taking the side of the usurers by blaming people for "overspending," as if it's luxury items on these credit cards for most people. It is condescending to suggest people are not living as frugally as they can, while the system we now have won't let them, due to all kinds of mandatory costs. It is as if by design that the middle class is being undermined systematically in this country, no? Why don't you turn it back around to the usurers, who make it almost impossible to reduce debt, as sanctioned by Congress?
"Smart ones" are basically the lucky these days.
Another "industry" creating the economic meltdown.
If you can't pay for it, you don't buy it. Simple.
Usually it is simple. And there is a lot of crap that is advertised that we should ignore. But what about when people are unemployed? It's hard to say no when the family needs important things like shoes that fit or medical care? Or when the car you use to look for a job needs a repair?
Even the Bible, written thousands of years ago, forbids usury. (Perhaps it is a Communist document?) Why is there no law forbidding excessive interest? One reason and one reason only: the lawmakers are on the take from the moneylenders.
Joe
My husband of twenty five years has always had one pair of shoes,a computer geek with the tightest clutch on the dollar, now I'm starting to admire his ways.It is simple, just get out the scissors for starters and start cutting up plastic "In debt we trust" It's time to be creative. Several people in Minnesota have robbed a bank .I know one man did not even have a getaway car .I don't have personal knowledge of it .It was on TV. Walked in, did not show a gun but the cashier thought it looked like one was under something,she handed him money,as he had requested and off he walked.
Several banks here in New York have robbed the people.
Joe
I believe the Muslim faith forbids usury also.
How about we get together and start a Bank -- like the Grameen banks for the poor. Wouldn't it be grand to steal the thunder of these damnable banksters and crooks in the U.S. financial industries.