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Credit-card issuers rush to raise fees

David Lazarus

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.

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