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Credit-card issuers rush to raise fees
David Lazarus
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TEXT OF INTERVIEW
Bill Radke: New rules for credit-card issuers go into effect in about a month. These are the limits on things like interest-rate hikes. So card issuers have been hurrying to raise rates and fees before that law takes effect. This week, the chair of the Senate Banking Committee proposed an immediate freeze on those practices. Los Angeles Times business columnist David Lazarus is following the story. Good morning, David.
David Lazarus: Morning.
Radke: How are these credit-card companies trying to raise extra money?
Lazarus: Well they're trying to raise money, essentially, by sticking their hand in your pocket. Not to put too fine a point on it. Citibank, for example, has been sending out letters in recent days informing cardholders that their interest rate is going up to almost 30 percent. In the letters that they're sending out, Citi really isn't giving any reason for that except to say that this will allow us to keep giving credit to people. And that raises real questions of fairness. Is it a money grab, or is Citi in fact managing high risk.
Radke: But David, Congress is limiting the interest rates that they can raise. The card companies have to make money somehow, true?
Lazarus: Well they do indeed. And a fair return, no one is going to begrudge them that. Here's the reality: Everybody pretty much needs a credit card in this day and age. The card companies when they introduce very high rates, or changes in contract terms that are not beneficial to the customer, the card companies have been offering opt-outs with that. Essentially saying take it or leave it. If you don't like these changes you can pay off your balance and walk away -- no harm, no foul. The problem is when all of the major card issuers are doing this, you don't really have a lot of opportunities or alternatives to go elsewhere, so you're really getting a squeeze from the industry.
Radke: The Chairman of the Fed, Ben Bernanke, says we've got to give the credit-card companies time to make this transition to the new rules.
Lazarus: Yeah, cry me a river is what I say. I mean when the Fed chief steps up and says, "We need to put the banks' interests first." I'm thinking, you know, the banks have had a pretty good and long run to get their act together and to say they're going to need a few extra months to accommodate these reforms, I'm kind of thinking -- no, the banks need to earn our trust.
Radke: OK, so David what is a consumer to do about these new fees?
Lazarus: A consumer needs to watch very closely all the inserts coming into the mail with your statement. There's going to be a lot of changes coming down the pike. Moreover, if you see any kind of contract change or interest hike that you don't like, there are opt-outs. It may be difficult to find another card that meets your needs, but they'll probably be out there somewhere. It's worth looking around. Don't accept terms that you don't want.
Radke: But the letters are long and the print is small.
Lazarus: Very small. It's hard to read.
Radke: Los Angeles Times business columnist, David Lazarus. Thank you.
Lazarus: Thank you.
Guess I'm behind the times. Citibank just recently CLOSE my Shell and Exxon MasterCard accounts that were in good standing (paid off every month, no delinquincies, regular transactions) because they "discovered" negative issues on my credit record from ... 2004. They issued the cards a year ago. It took that long to evaluate my credit?
I don't for a minute believe they "suddenly" discovered negative information. I think they realized that in 12 glorious months of service, I was never carrying a balance, getting 5% rebates on my purchases, and never paying a late fee. Oh noes! This cardholder isn't giving us any profits! "Slam!" goes the credit door.
So no more Shell or Exxon gas for me, hi-ho, hi-ho it's off to BP or Costco I go. Today you reported that Exxon's profits dropped 65% in the last quarter, and Shell's 62% down in the same quarter. This is irony I can slice with a butter knife.
I recently received notice from Chase Credit Card that they were increasing my set 5.99% APR (which I've had for years) to a variable rate that currently will be 8.99%. In response to an email I sent them indicating I understood that Chase has made little money from my account since I usually pay in full each month and that pending federal rules will make it more difficult for them to raise APR's, they did not answer my question as to WHY this was happening and simply restated that I could opt-out by mid November.
While I feel more fortunate than those who have received an increase to 20-30% APR, my increase is 50%, from 6% to 9% APR.
This is outrageous but it looks like nothing can be done. The consumer is SCREWED again.
Hey,
There's no doubt that people act irresponsibly with credit. (What's more American than that? Maybe action films...)
However, that doesn't mean that credit card companies aren't behaving fairly. The market is supposed to be open, definitely, but the imbalance of information and bargaining power means that the market is never as open as it seems.
I know it's hard for "responsible" people to swallow -- that people who "behaved badly" are getting some kind of help or relief. However, I wanna see those same people reject help or relief when they've behaved badly (because everyone has and does and will behave badly at some point.)
The credit card companies aren't being put out of business. That's never going to happen. Americans love (& need) credit. They way it looks to me, is that credit card companies will now have to share more relevant information with consumers in a fashion that consumers will understand; and people can make whatever good or bad decisions that they will make with better information.
Seems like a good set-up to me.
So what! Show me someone who is carrying a credit card balance and I'll show you someone who can't manage their personal finances. Show me someone who is paying a 30% rate on that balance and I'll show you an idiot.
Let's take some personal responsibility and quit blaming the banks for our own stupidity!
No big deal, due to the recent costs of using credit having already hit us, we've put the household budget on a no more credit cards, pay as we go program. But this means reduced income will cause less consumer spending. Now in order to recover our economy, jobs and income will have to recover BEFORE consumer spending can recover us, and we know how unlikely that will be.
Our economy is so toast.
