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Bank Execs Try to Explain Gotcha Credit-Card Rate Hikes

Senator Carl Levin (D-Mich.) chaired an investigations subcommittee hearing on credit cards and the mysteries of how banks determine cardholders' interest rates—and raise them dramatically without warning. In particular, the hearing focused on banks' use of "universal default," by which your card's interest rate gets hiked up because you missed a payment to another creditor—not the card's issuer. Or, as the consumer-rights blog The Consumerist puts it, "the most evil and hated practice where a credit card company boosts your rates because you didn't pay a late fee owed to the library." Oh, and those new rates apply retroactively to all existing items on your bill. This is one of dozens of sneaky credit-card tricks banks spring on plastic-carrying customers. Levin called three unhappy cardholders to testify, followed by three bank executives. The Consumerist liveblogged all three hours of the fun. A couple of choice moments:

10:16: Onto Millard Glasshof, who has been retired since 1992. He's here with his wife.

10:16: In 1997 he received a MasterCard with Bank One. He originally agreed in 2004 to payoff a balance of over $5,000 at 14%.

10:17: In March 2005, Chase took over Bank One and bumped the rate to over 17%.

10:18: Millard had never missed a payment. Chase could not explain the increase.

10:19: He received a letter, which he didn't understand. He thought it said that his new payments were $111. He called to confirm, which Chase did. When he paid $111, Chase hit him with fees for insufficient payments.

10:20: After the Subcommittee looked into his situation, Chase miraculously dropped his rate to 6%.

[...]

11:09: Onto Bruce Hammonds of Bank of America, who sounds like he has the entrails of the poor caught in his throat.

11:09: "We constantly monitor our customer's behavior." And you folks worry about government.

11:10: 9%-10% of customers refuse higher rates, close their accounts, and pay off the debt at the old rate.

11:10: Risk-based pricing is good for consumers, says the largest bank in the country.

11:11: Ha! Customers who are re-priced often adopt better financial practices. Right, that's what happens, BoA. Don't feel free to provide data.

11:12: Bank of America is arguing that they are a friendly bank, even friendlier than Discover.

11:13: "Customers like our policies." "We listen to our customers. I personally have spent hundred of hours listening to our credit card customers."

11:13: "If any of us are wrong, the market will tell us." (By crashing.)

(H/T Kevin Drum)

Comments

It took me one year to realize I had a problem, and another 2 years to fix it,
I don't even know how many
fees and bullshit service
charges I paid, but suffice
it to say, at the end of the
day, I closed out every single
credit account that I had.

Moral of the story? Read the
fine print, and consider
carefully what you're doing.
Credit card lending is nothing
less than loan sharking with
a nice pair of shoes, the
sooner you evict the wallet
leeches, the sooner your
income(or at least a little
more of it) will belong to
you. Oh, and credit card
applications make GREAT
mulch material...except
for the window envelope which
has some plastic in it, and
the glossy brochure things
some of em have...and, don't
forget, some of these companies that issue the plastic are based overseas...
so, if you want your life
back, go get you a pair of
scissors and take issue
with whatever's in YOUR
wallet...

Posted by: Bert on 12/05/07 at 10:19 AM Respond

They need to re-evaluate this universal default rule. It's clearly borderline predatory.

And why is it that credit card issuers raise the APR of borrowers who have trouble making payments?

If they don't have the money at the lower APR, they sure won't have it when their payments get bumped higher.

Then credit card issuers will need to charge-off the debt.

Posted by: Credit Dude on 12/05/07 at 3:14 PM Respond

We pay our bills off every month and still got caught with a $39 late fee because our payment arrived on time but was deemed late because the due date was a postal holiday. I got them to waive the fee but had to call and ask. Even the IRS lets you postmark the day after if April 15th turns out to be a Sunday! The other thing that's happened is that the time to pay your bill has been shortened. By the time you receive your bill, the time to pay your bill if you write a check, is 10 days or less. What happened to 30 day revolving accounts? They're gone! We were on vacation and came back to a Sears Gold Card bill that was due in 2 days. Because we don't pay online, my husband called and asked for a couple days to get the thing there by mail. No dice. He had to go to the store and pay in person. I was pleased to see their stock went down 99% the next day. And the credit card companies only set minimum payments on less than 2% of the total debt as a minimum payment, which pretty much guarantees that if you do pay the minimum, you'll be paying thousands more than if you'd just paid the thing off and you'll only get more in debt with them. What happened to the usury laws? And don't even get me STARTED on the subprime mess. What the banks did to package less creditworthy debt as AAA securities was just plain fraudulent. Why aren't they paying for their crimes? Why are WE paying for their crimes??? It's about time "sumbody dun somethin" about this!

Posted by: Karenesq on 12/05/07 at 5:59 PM Respond