Consumers fighting credit card hikes on The Murfreesboro Post

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Consumers fighting credit card hikes

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By: MICHELLE WILLARD, Post Staff Writer

Posted: Sunday, December 6, 2009 7:47 am

Consumers fighting credit card hikes | Economy, Credit Cards, Pinnacle Bank, Bill Ford

Consumers are finding themselves fighting massive rate increases from credit card companies before new federal laws kick in next year.

Editors note: A source in this story asked to be anonymous, so we refer to her only by her first name.

When Jennifer opened her credit card statement last month, she was taken off guard by a steep interest rate increase even though she pays her bill on time.

“The credit card companies do some amazing things,” she said. “One of my cards (said) I had a choice, except (the annual percentage rate) increase to 27.99 percent or keep my 7.99 percent, but they would cancel my card,” the mother of one said.

Then another card tripled her minimum payment.

“They said it was because of the economy and (they were) giving out so many loans to consumers they needed more money coming in,” she said angrily.

With these changes in practice, Jennifer plans to pay off her cards and cancel them as soon as possible.

She’s not alone in her recent experience with credit card companies. According to a recent Rausmusen poll, 50 percent of Americans have seen interest rate increases in the past six months.

The telephone survey found 77 percent of Americans believe that credit card companies take unfair advantage of consumers with the interest rates they charge.

MTSU’s Weatherford Chair of Finance William Ford said credit card interest rates are going up because of the economy.

“They (the credit card companies) want to make money and they have more and more credit cards that are delinquent,” he said.

Credit cards are a different kind of monster and inherently riskier than other types of loans, he explained.

When a consumer is delinquent on a car loan or mortgage, the company can repossess the car or foreclose on the house. With credit cards, the expense of delinquency is passed along to other consumers.

“A lot of the people don’t pay, so the ones that do have to pay,” he said.

To curb what is seen as unfair lending practices in the consumer credit industry, U.S. Congress passed a credit card reform act in May that will go into effect next year. At the time, supporters said the law was needed to protect customers, but some – like Jennifer – see the credit card companies taking advantage of the situation now, while they can. Congress is currently considering placing a moratorium on interest rate increases until the law is enacted.

The new law will restrict interest rate and fee increases, as well as ban unfair lending practices.

Jamie Sweeney, Senior Product manager at Pinnacle Bank, said the new law places mandatory disclosures on rate and fee increases, changes rules on how late payments are treated and outlines how late fees are charged.

The law will also make credit companies inform consumers of rate increases 45 days before hand and will make companies accept payments on the day they are postmarked, not the day they are processed, Sweeney said.

“Some companies have it setup so they can charge a late charge whenever they can. Others are fair about it,” he said. “This just lays it out for the consumers.

“Right now it varies from issuer to issuer,” he said, explaining that most mid-sized and community banks like Pinnacle don’t actually create their own credit cards, but out sources them to larger banks.

Pinnacle uses Elan Financial Services, a division of U.S. Bank, but Sweeney said the local bank doesn’t push credit cards as a revenue stream.

He said he’s interested to see how credit companies handle the changes.

“I think what it will do is make some of the issuers come up with ways to create revenue,” he said, noting companies will either tighten lending, increase interest rates or create more fees in the near future.

Ford said these changes can make a difference in how credit card companies function and how they will treat old and new customers.

Ford said the companies are likely to increase interest rates on new customers to make up the lost revenue.

“Bankers will find a way to make up the difference,” Ford said. In the mean time, he advised credit card holders to be sensible about their finances and minimize interest payments by keeping credit scores up and paying more than the minimum balance, if not paying cards off completely when possible.

But Sweeney has already seen a difference in how companies are treating consumers.

His own father canceled a few cards because he was given a choice between a higher interest rate and cancellation.

Michelle Willard can be contacted at 615-869-0816 or mwillard@murfreesboropost.com.

Tagged under Bill Ford, Credit Cards, Economy, Pinnacle Bank

Member Opinions:

By: Sputnik on 12/8/09
CitiCard raised my rate from 7.99 to 29.99%. I didn't get anywhere talking to them, so when my bill was due I didn't pay it. After a few days I received a call from them telling me that if I paid the past month and the present month right then, they would lower my rate back to 7.99%. I paid them over the phone, but guess what, they didn't reduce my rate. I complained and got nowhere. So I told them I was going to subpoena the recording of the day I was promised the lower rate and guess what I got? 7.99% again. I'm getting out of using credit cards altogether. Cash or debit card only.

By: Macgyver on 12/8/09
Get it must be in writing! Cut up the cards and learn to do without.

By: abide on 12/14/09
No dough no go is the best policy.