Surprise! BofA raises credit card interest rates
Posted
Apr 10 2009, 03:13 PM
by
Karen Datko
Rating:
This post comes from Truman Lewis at partner site ConsumerAffairs.com.
As Congress mulls new restrictions on credit card issuers, Bank of America is raising interest rates on millions of its customers who routinely carry a balance on their credit cards, a move already taken by most other larger issuers but not one that goes down well with consumers.
Basically, BofA and other banks are penalizing customers who don't pay off their bills each month. It's a reversal of banks' usual practice. During normal economic times, bankers loathe customers who pay their balance each month, because by so doing they deprive the bank of the interest it would have earned on the unpaid balance.
But now, with banks hoarding every cent, the worm has turned.
"The changes are extreme," said Jonathan of Hyde Park, Mass., one of hundreds of consumers who've complained to ConsumerAffairs.com. "My interest is doubling from 4.9% to 9.9%. My credit score is excellent and I have a perfect five-year history since opening this account. There is no reason for my rate to increase."
Starting with the June statements, stiff increases are being applied to customers whose interest rate has been below 10% and who carry a monthly balance, the bank said. Exact numbers aren't being released but estimates of consumers affected range as high as 4 million of Bank of America's 70 million credit card customers.
Other banks have already been down this road. Citigroup, Chase and America Express have all adopted similar rate increases in recent months, as have many other smaller issuers. The banks are under increasing pressure because of rising delinquencies among their credit card customers -- but critics say that raising interest rates of good customers who pay their bills on time isn't the answer.
Evelyn of Willow Grove, Pa., was puzzled and angered when she got a letter informing her that her interest rate was going from 7.24% to 12.24%.
"As I have never been late and always make my payments on time and pay more than asked, I called to inquire about this significant jump in the interest rate. The representative tried to be as helpful as possible and advised that they are doing this increase due to the economy," Evelyn said. "What I don't seem to understand is if our economy is doing so poorly ... why are we penalized for paying our bills on time?"
Evelyn said the bank representative told her she could pay down the debt if she didn't want to pay the monthly interest, but Evelyn complained that curbing consumer spending does nothing to stimulate the economy. Consumer advocates generally recommend that, in similar situations, consumers should pay down their balance but not close the account, as doing so can damage their credit score.
New rules
New rules enacted by federal regulators in December limit banks' ability to raise credit card interest rates, but the rules don't become effective until July 2010.
Legislation is being considered in Congress, but separate House and Senate measures must be reconciled before the measures go any further. Banking industry lobbyists argue that the restrictions would inhibit banks' ability to manage risk and result in less, not more, consumer credit.
Tamara Draut, vice president for policy and programs at Demos, a nonpartisan policy center, says legislative action is all the more necessary because of the deepening recession.
"In this tough time, it is unthinkable that credit card issuers would think of tightening their grip on the household pocketbook, but that's exactly what many have done in recent months -- capriciously raising fees and penalties, even as the government poured billions of dollars into them," she said.
But the American Bankers Association said it was disappointed by the Senate Banking Committee vote, and that passage of the bill would hurt consumers as much as it would banks.
"Credit cards provide access to credit for millions of Americans and small businesses every day. Making this credit available is a very risky business and the committee's action today will unfortunately make it harder -- not easier -- for banks to continue doing so," said Kenneth J. Clayton, ABA's senior vice president for card policy. "Credit card lenders of all sizes will likely have to pull back on providing reasonably priced credit to a wide range of consumers and small businesses. It is hard to see how that makes good policy sense."
Sen. Chris Dodd, D-Conn., who sponsored the bill, said the close committee vote indicated the bill may need modification to ensure passage by the full Senate. Similar legislation is making its way through the House.
Related reading at ConsumerAffairs.com:
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