Credit card firms play rough

[question everything]

Credit card firms play rough

Customers can face steep rate hikes, penalty fees

By Patrick McGeehan
NEW YORK TIMES NEWS SERVICE

November 25, 2004

When Ed Schwebel was whittling down his mound of credit card debt at an interest rate of 9.2 percent, the MBNA Corp. had a happy and profitable customer. But this summer, when MBNA suddenly doubled the rate on his account, Schwebel joined the growing ranks of irate cardholders stunned by lenders' harsh tactics.

(snip)

Schwebel had stumbled into the new era of consumer credit, in which thousands of Americans are paying millions of dollars each month in fees that they did not expect and that strike them as unreasonable. Invoking clauses tucked into the fine print of their contract agreements, lenders are doubling or tripling interest rates with little warning or explanation. This year, credit card companies are changing the terms of their accounts at a historically high rate, said Michael Heller, an industry consultant. As those practices spread, they are creating a rift between the lenders and some of their more lucrative customers, according to cardholders, current and former bank consultants and regulators who were interviewed for a joint report by The New York Times and "Frontline," the PBS documentary program.

(snip)

In the last few years, lenders have more frequently raised customers' rates because of slip-ups elsewhere, like late payment of a phone or utility bill, or simply because they felt a customer had taken on too much debt. The practice, called universal default, started after a rash of bankruptcy filings in the mid-to-late 1990s and has increasingly become standard in the industry. While MBNA declined to comment on any specific customer's account, its general counsel, Louis J. Freeh, the former FBI director, said in a statement that it was being prudent by raising rates when it had reason to think the risk of not being repaid had increased.

(snip)

Still, some critics say the severity of the punishment does not match the risk of default. The suddenness and perceived unfairness of the penalties have left many consumers feeling burned by lenders who relentlessly courted them with promises of low rates. To some cardholders and consumer advocates, credit card companies are acting like modern-day loan sharks, strong-arming their customers to pay more – with no legal limit on how much they can charge. In eight years, the major card companies have increased the fee charged to cardholders for being even an hour late with a payment to $39, from $10 or less.

(snip)

Without the 85 million Americans who revolve, card issuers would be struggling to please their investors. But with them and the hefty finance charges they accrue from the moment cashiers swipe their cards, the industry is reaping record gains. Last year, card issuers made $2.5 billion a month in profit before taxes... But the lenders' aggressive tactics have prompted a surge in complaints and lawsuits and even a warning from the primary regulator of national banks in September. In an advisory letter, the Office of the Comptroller of the Currency said banks should not raise card rates without having fully and prominently disclosed the circumstances that might cause an increase.


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Find this article at:
http://www.signonsandiego.com/uniontrib/20041125/news_1b25credit.html

[Hello_Kitty]

1. Let me get this straight

"In the last few years, lenders have more frequently raised customers' rates because of slip-ups elsewhere, like late payment of a phone or utility bill, or simply because they felt a customer had taken on too much debt."


Soooo, if someone is clearly having trouble paying their bills, you raise their interest rates so they have even MORE trouble paying their bills. What's next, the return of debtor's prison?...Nice. Corporate Fascism at its finest. :eyes:

[Digit]

3. They consider that you are a greater risk....

I guess what has me more troubled is the fact that even though you have never been late with an individual company's payments, the fact that you have been late with some OTHER company's payment, is an opportunity to screw you, so they can charge you higher interest rates/insurance rates and increase their profits.

This country is screwed and the citizens are screwed.

[hfojvt]

6. it is a logical response

Profits mean nothing to them if they do not get paid back. If you are going to crash and burn, they want to make sure you pay them before you pay others. The massive interest rate is an incentive to do that. If they are charging you 19.99% you are going to pay them first and let other creditors/bills slide.
Say what you will about people getting screwed, but barring unforseen loss of jobs or health, people are getting into credit card debt of their own free will, and buying into the consumerist dream.
Also credit card penalty rates pale in comparison to what those "payday loan" places charge. 24.99% APR compared to 3000%.

[elfrangel]

12. so... they're predicting the future now?

can they predict next, that due to my health, I may become permanently disabled at any given time, so they can raise my interest rate to make sure they get paid?

[question everything]

8. And even rescind a job offer

as has been reported lately

[Baja Margie]

2. And

get this, if you totally pay off a card, sometimes they will just cancel the card on you. I used to write irrate letters to Mobil Oil every month and put stuff on the envelope like "BLOOD MONEY", "WHAT A RACKET","GREEDY ROBBER BARONS", etc. Finally, they just cancelled the card. This was a card we had for over 10 years, always paid the balance every month. I guess they didn't like my attitude.

[demgrrrll]

4. Louie Freeh? good grief these people do know how to reward their

soldiers don't they. Nice cushy job with as counsel with a credit card group.

[warrens]

5. As the former editor of a credit card publication

This is nothing new. It will get worse until people learn to pay cash or use debit cards. It is a sucker's game, and if you miss ONE payment, they can jack your interest payment WAY over the usury law. And will.

[hfojvt]

7. as a former customer service person

for a credit card company. I am sure that a good customer can call customer service and get their rates lowered (from default rates). If the first person you talk to will not help, ask for a supervisor, or close your account. One missed or late payment is not going to hurt you unless you let it.
I think I am winning at the game - of course, the game ain't over yet.

[question everything]

11. Yes, but you really have to think about this

We are bombarded with letters from Citi cards offering us all kind of new cards, sometimes we get six letters a day, three for each of us. So one day, a real statement was hidden among all of them and earlier this week I realized, to my horror, that the payment was due that day. I called customer service. Can I pay by phone? Yes, but it will cost you $14.95. But you can go to the Internet and pay online. Then, since we do have good credit, she added that she extended the due day by nine days and I just wrote a check and put in the mail. And now, I keep my fingers crossed.

[question everything]

9. Ah, but two thirds of our economy is based on service and consumption

so if all of us will decide to - gasp - live within our means, not to spend money unless we have it, our economy will end up going down in tail spin..

Remember in 1992, when papa Bush went to buy a pair of socks, at J.C Penney, I think, to "encourage" consumption?

[Aiptasia]

10. So what else is new?

Don't you just love the credit cards that charge interest from the date of purchase?

I have been credit card free for almost 12 years now. I'm down to one visa debit card, and my credit score was 806 the last time I applied for a car loan.

I'm the mang...

Just give up the plastic and ruin the frigging money lenders!