Consumer advocates and members of congress are both upset and annoyed by credit card companies that are scurrying to raise their interest rates and fees whilst lowering their cardholders’ limits before new laws take effect, just seven months from now.
Looked at from a lender’s point of view however, it’s easy to see why they are in such a rush to both protect and to increase their profits.
The new law when it’s enacted will prevent card companies from raising rates on existing balances unless the borrower is at least 60 days in arrears, and will require the original rate to be restored if payments are received on time for six straight months.
Under the present law, credit card companies are not obliged to get permission from customers who’s spending will take them over their limit, but since customers who exceed their limits are charged a fee, the new law states that their permission must be given.
Next month, Chase intend to raise their minimum payments for selected customers to 5% from 2%, and their minimum fee for transferring a balance will rise to 5% from a previous 3-4%.
Stephanie Jacobson, who is a spokeswoman for Chase Card Services, said that “Fewer than 1% percent of our customers will see a monthly minimum payment increase. Our desire is to have these balances paid back in a reasonable period of time”.
Bank of America raised their transaction fee for balance transfers and cash advances from 3 to 4% last month.
Discover have raised the maximum fee that they charge for transferring balances, from 3% or 4% to 5% of the amount transferred.
Citibank and Bank of America both started to raise their rates and to reduce their limits in January, and they are continuing to do so.
Citibank has had the biggest increases in fees and interest since January, and it’s vice president Samuel Wang had this to say, “These changes reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit”.
What’s more, it isn’t only the credit card companies that are hurrying to user in changes.
Kevin C. Langin, who is a spokesman for Atlanta based InfiBank says that the bank will raise the minimum annual percentage rate it charges nearly all of its customers in September, “in order to more effectively manage the profitability of our credit card account portfolio in a very challenging economic environment”.
Sen. Charles E. Schumer (D-N.Y.)who has many times complained about the inadequacies of the bill, again asked the Federal Reserve to make use of its emergency powers, and to halt the rises in interest rates.
“This is what many of us feared about a law that didn’t take effect right away. It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law, and it is just plain wrong”, and he’s by no means alone in his opposition to the way that the bill is presently framed.
Rep. Carolyn B. Maloney (D-N.Y.) said “Capricious actions like these are why Congress overwhelmingly passed, and President Obama signed, my credit card reform bill. To level the playing field on behalf of consumers. The recent rate and fee hikes were unfair and deceptive and must be stopped”.
The senior vice president of government affairs for the industry group Financial Services Roundtable is Scott Talbott, and he insists that there are two explanations for the rate increases.
“First, consumer credit scores, which banks use to determine if they should lend and at what price, have decreased. Second, the cost of providing credit has increased. Once the new law is in effect, we anticipate a further reduction in the availability of credit and additional increases in the cost of credit”.
Lenders across the board have been suffering from a huge number of charge-offs, which are debts that they believe are irrecoverable, and in June their credit card losses reached 10.44% percent which is easily a record loss.
Bank executives have long been warning that the new law would force them to increase their rates and fees, because it would keep them from properly managing borrowers’ risk and they argue that if they become prevented from raising rates for their riskiest cardholders that they would have to raise everybody’s rates. And there’s a logic to that.
John Ulzheimer, who is president of consumer education for Credit.com, which tracks the industry says, “It’s what I call the Credit Card Trifecta. Lower limits, higher rates, higher minimum payments.This is a common practice and will continue to be common, because issuers can do these things for really no reason until February.
* A Trifecta is used to describe a bet in which your three horses must finish in first, second and third places, and in the correct order, and the use of the phrase suggests that John might enjoy a little bet once in a while.
How Much Will These Changes Affect You?
Imagine that you have a credit card with Chase, and they suddenly notify you that starting this August that your minimum payment of $180 is going to be increased to around $450!
Well if you have credit cards, you won’t have to use your imagination for very much longer, because that kind of notification or something similar is most likely coming your way real soon.
If the above does happen to you and you know that you won’t be able to make the payments, then don’t delay but contact a reputable credit counseling service right away.
Author-Bio: The author of this article was a film producer, and award winning film sound editor for many years. He has an interest and natural flare for economics, so if you need a loan but are worried about your credit score, then go check out http://need-credit-now.org because if offers a long list of lenders that provide, Auto Loans, Personal Loans and Mortgage Loans, plus Guaranteed Credit Cards to those with bad credit.
