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Before reform, cards play with interest
Credit cards
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STEVE CHIOTAKIS: Perish the poor soul who gets one of those letters in the mail. It'll cost more to carry a balance on that Visa or American Express.
Or how about the new fee if you don't carry a balance. While credit card reform is on its way, it can't get here soon enough for some. Meantime, banks are trying to make adjustments as quickly as they can. And that has the ears of Congress.
Marketplace's Nancy Marshall Genzer explains.
Nancy Marshall Genzer: John Bartolac is signing the credit card slip at a jewelry kiosk in Washington's Union Station. He just bought a necklace and earrings. He's careful with his card. Still, he got a letter recently from his bank saying his interest rate was nearly doubling, to almost 20 percent. He called to complain and got a lower rate. Still, he was mad.
John Bartolac: I was still upset with it, because I'm a loyal customer, and I've been paying on time.
A lot of loyal customers are upset with their credit card companies. The Pew Charitable Trusts just released a report that says advertised interest rates rose an average of 20 percent in the first half of this year. The rate on some cards jumped to 30 percent. Pew studied almost 400 credit cards. Nearly all of them imposed penalties that will soon be illegal under credit card reform legislation -- things like jacking up your interest rate for a late payment and never rolling it back. Or applying payments to low interest debt first, so things you charged at the highest rate stay on your bill.
Nick Bourke: I think maybe the rates are going up now, and they're going up so steeply, in part because the credit card companies are trying to get in, before the new law takes effect.
Nick Bourke manages Pew's Safe Credit Cards Project. Congress is considering legislation that would move up the credit card reforms to Dec. 1. Banks say that wouldn't give them enough time to update their computers to comply with the law, even though it was passed last spring.
Scott Talbott is a banking industry lobbyist.
Scott Talbott: I think it would almost impossible for the industry to comply. We don't have final regulations relating to specific details of how to implement the new law. And we have computer software, and training and disclosures that have to be changed.
Congress is also considering legislation that would freeze interest rates immediately. Banks say that would cut into their profits and force them to lend less money.
Talbott defends the interest rate increases. He says they're necessary because so many people are out of work, there's a greater risk they won't pay their bills. But the banks' critics say they're jacking up rates almost across the board. And some card companies are starting to hit consumers with fees, because they pay off their cards every month.
David Parsons: Credit cards are the work of the devil.
That's David Parsons, retiree from Bloomington, Ind. You guessed it. He got a letter from his credit card company. They're raising his interest rate by 75 percent.
Parsons: It's like they're asking the consumer to cover their butts. It's just not the way I think business should be done.
So, how do you fight back? Call Congress, says Robert Manning, author of "Credit Card Nation."
Robert Manning: Americans really need to demand now and put pressure on their members of Congress to enact this legislation sooner, rather than later.
And read the fine print on that letter from your credit card company.
In Washington, I'm Nancy Marshall Genzer for Marketplace Money.
Renee, a debit card with a VISA symbol on it does not afford the cardholder the Federal protections that a credit card has. Be cautious, very cautious, using those online or elsewhere where it "act(s) like a credit card."
The Credit Card companies are continuing to act very strangely indeed. Citibank recently closed two gas company MasterCards of mine based on "negative information" from Equifax. A check with Equifax confirmed that no new negative information has appeared on my report, and in fact, my credit score is "good." Both accounts were in good standing, paid regularly.
And now this: I applied for a BP Visa card to continue getting gas on credit (hopefully with a rebate), and Chase declined with this: "Anticipated account related expenses likely to exceed expected revenue." Tyler with Chase told me that an analysis of my spending habits (pretty good lately) indicated that the account would cost them more than they'd earn. They based this in whole or in part on information provided by Equifax.
The punchline: a rep at Equifax says that Chase hasn't requested any information about me in the last 90 days.
So if the credit card companies get out of the business of providing their cards to responsible consumers, what's left of their business model?
Banks act irresponsibly and make huge mistakes, but we have to pay for it.
But when we make a tiny mistake (or in our case with CITI, no mistake, see below) such as merely a one day late payment, we have to pay for it big time with interest hikes and absurd fees.
Citi just jacked our interest rate to 30%. Their reason was: "to continue to provide our customers with access to credit, we have had to adjust our pricing..." Whatever.
Banks taking our money to bail them out of their mistakes is like them paying us for our mistakes (late payments and overdrafts).
The average interchange fee in the U.S. is seven times the interchange fee set by Visa and MasterCard in countries throughout the rest of the world. Using 2008 figures, if the interchange fee charged by credit card issuers was decreased (via comprehensive credit card reform legislation) from the current 2.10% to 0.60%, the result would be an annual savings of approximately $34.3 billion for U.S. merchants and consumers.
Let's be clear. The interchange fee is a hidden tax, just not a tax subject to political control or for which there is any discernible social benefit. Decreasing, and imposing a transparent tax on, the interchange fee would have the same stimulus effect of a tax break, but without an impact on the federal budget.
The following article discusses the need for comprehensive, standardized, simplified, and transparent credit card reform legislation.
http://www.csnews.com/csnews/images/pdf/creditcardreform.pdf
A no-fee credit card has always been a staple of my financial planning. It helps me to plan ahead and then stop spending when I have reached my budget limit. I pay my balance every month, so don't pay interest. I have never seen the value of a debit card which makes it easy to overdraw a checking account and incur a fee. If the credit card companies start charging for a fee for the card, then I would quit using one.
What people should really do is free themselves from credit cards. As other articles have pointed out, a debit card with a visa symbol on it will act like a credit card. While this may not work for a small business that needs credit, it would help millions of Americans with their financial health and make it clear to the credit card companies that you do not need their predatory lending. I did and now I am debt free -- that is freedom!
