Credit Card Interest Rate Increase

Lauren K. Bodenski left this comment, and her situation is common.

“Our credit card company, Chase, just raised our credit limit to 27.24% (from 12.99%) from June to July statements. When I called to ask, I was told that the federal government has frozen interest rate changes pending enactment of the Credit Card Reform Act implementation (six+ months from now?) Is there any truth to this assertion by the Chase representative or is it the line of bull I suspect it is?”

It’s the latter. There is no truth to the assertion that credit card interest rate changes will be frozen in any way.

First, there is no cap on interest rates in the credit card reform bill. There was a measure to cap interest rates at 15%, but there wasn’t enough support in the U.S. Senate to pass it.

Second, your credit card interest rate can still be raised to whatever default rate is listed in your credit card contract should you be late with your payments.

REASONS FOR INTEREST RATE INCREASES

So why are they more than doubling your interest rate, and the rates of millions of others now? Because they have a plan for not just short-term gain, but profits down the road.

• They are doing it because they can, and because it’s easy money.
• They are doing it as revenge, and as part of long-term strategy.

EASY MONEY

Used to easy money and an unlimited ability to milk consumers, they are raising rates in anticipation of not being able to milk consumers as before or, as The Wall Street Journal says, moves are being made “as issuers look to offset the loss in revenues resulting from new laws”

Also, banks were hit hard by losses in the subprime market, and what could be easier than raising credit card interest rates to make up for it? The fact that taxpayers bailed them out is irrelevant. Used to mammoth profits if they can’t get profits one place, they’ll get them from another.

REVENGE AGAINST OBAMA

Yet, this is the big reason for such dramatic increases. Part of a long-term strategy  to gain  back  total control , they are doubling rates to make President Obama and those who fought for the bill look bad.

Why?

They hope to build a backlash against the Obama administration among voters, and then usher in a Republican president in 2012 who will get rid of these reforms and assure that no second crack at toughening them up i- or instituting an actual cap on interest rates -is made.

They don’t care how they look to the consumer – they realize their customers increasingly hate them – they just want to try and shift the blame onto Obama.

And, as those with money do, they are building the effect they want. There are accusations of incompetence and fraud being leveled against the Obama administration for giving credit card companies this window of opportunity. Unfortunately, Obama thought he was dealing with honorable men when negotiating with all the major players.

Yet credit card issuers hope that consumers do not catch on to this strategy to get voters to change horses mid-stream. They will be content if you think that your credit card company is just punishing you or that they really do need the money, poor things.

COMPANIES DOING WHAT BILL WAS TO STOP

Gleefully, Chase is doing precisely what the original, proposed bill was supposed to stop, which is raise rates at any time for any reason, and even for a manufactured reason.

Chase and all the credit card companies know that they are expected to curtail some other charges and that it may not be as easy to double rates on an account without some reason after February of 2010, so they are doing it now, thus making the bill somewhat of a bitter joke.

Yet, this was predictable and, as I wrote in a previous blog, what we needed was for the bill to contain an interest cap, and for it to go into effect immediately instead of allowing credit card companies a year’s window in which to raise everyone’s rates through the roof.

However, the Obama administration simply couldn’t get Congress to enact those reforms. Congress is still very much influenced by corporations, as we have seen in the health care debacle with too many Congressional representatives parroting insurer’s talking points.

AGENT 0016′s PERSPECTIVE

“Agent 0016″ has been very frustrated because it’s gotten to the point where there is absolutely nothing he can do to help customers who call in about their rate changes. People are angry, shocked, depressed, broke, and defaulting as a result of the increased interest rates, but his hands have been tied.

He can’t lower rates, he can’t give credit increases, he can’t reinstate credit limits. He is limited to confirming the bad news for the people who call in about their rate increases and “occasionally waiving a lousy late fee or two”.

SUMMARY

The truth is that, even after the credit card reform bill takes effect, your credit card company will be able to raise your rates if you are late with your payments, and there is no cap on what they can put in your contract as a default rate.

HOWEVER – and this is a big however – it is my understanding that you will need to be late with your payments for 60 days before your rates can be raised.

No longer will being one day late with your payment be sufficient to raise your rates.

Neither will a late payment to another credit card company be a sufficient reason to jack up rates on an account that is being kept current.

According to a May 21, 2009 article by the Wall Street Journal:

“Consumers also wouldn’t face a retroactive interest-rate increase on existing balances unless payments are 60 days overdue. Even after that rate increase, a consumer could get the old rate reinstated by paying on time for six months.”

However,  I continue to believe that credit card companies will find away around the rules with new fees or new definitions.

And, right now, Chase is simply picking Lauren’s pocket because it can.

It’s also possible that Chase is trying to get rid of her as a customer if her account isn’t generating enough profit for the company. (She may not be charging enough.)

All the credit card companies have been dropping both ends of the spectrum of credit card users for several months. Those dropped consist mainly of:

• those who haven’t charged anything in months and have zero balances
• those who are maxed out and only paying the minimum (or not even that.)

So, thanks very much, Lauren, for the question. For more horror stories involving Chase and other credit card issuers, I refer you to this post and the reader comments at Kevin Johnson’s blog.