Credit card companies pump up rates, fees
Banks say customers have choice to opt out
If you’ve got a credit card, you’ve likely been zinged already.
Higher interest rate? Yep. Lower credit limit? That, too. New fees for late payments? Absolutely.
In the months since Congress clamped down on what it deemed as “unfair and deceptive” credit card practices, dozens of credit card companies have been busily hiking fees, rates and penalties in anticipation of stricter rules. In the last few weeks alone, Bank of America tacked annual fees of $29 to $99 onto some cards and Citibank jumped some annual interest rates to nearly 30 percent.
Pablo Espinoza, a California state Assembly staffer, knows it too well. A Citibank customer for 11 years, Espinoza said he frequently got “preferred” treatment, such as the temporary 5.99 percent interest rate he was carrying.
Not anymore. A week ago, he got a Citibank letter informing him that his interest rate was going up — way up — to 29.99 percent.
“It was shocking to get the letter,” said Espinoza. “Five months ago, I was one of their best customers. . . . They’re trying to circumvent the (new federal) regulations and squeeze consumers to get back in better financial shape.”
Espinoza said he’s never been late with a payment and has a decent credit score but was told that his minimum payments weren’t high enough to keep him at a lower rate.
Last week, a Citigroup Inc. spokesman in New York said the company cannot discuss individual customer accounts nor disclose how many cards were bumped to 29.99 percent.
“Customers have at least 45 days to accept these terms or refuse them by opting out,” said Samuel Wang, public affairs vice president. Most of those who opt out “can continue to make purchases at their existing (lower) rate until the card expires.”
In a queasy economy, banks say raising rates on consumer credit cards is a financial necessity. “With a credit card, there really is no collateral if the consumer defaults. . . . The credit card issuer is left holding the bag,” said Beth Mills, spokeswoman for the California Bankers Association, which represents 200 financial institutions.
Given the economy, unemployment and default rates, Mills added, “interest rates are the way to manage and control risk.”
Not surprisingly, the flurry of credit card rate hikes has customers howling and consumer groups tallying the damages. Last week, the Pew Charitable Trusts released a new survey showing “harmful” practices were still endemic across dozens of cards issued by the 12 largest banks, which cumulatively hold $781 billion in credit card debt.
It found that median annual percentage rates (APRs) have jumped as high as 17.99 percent through July this year, up two percentage points from December 2008.
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