When Jamie received her last credit card bill, there was a caption on the statement that said that her interest rate had been increased. She was puzzled to receive such a notice since she had always been a good customer, settling her bills on time and rarely late on her payments. Her bank explained that they had no choice, but to hike interest rates because of poor business conditions.
Her card issuer also gave her a choice, that is to accept the increase (which was triple the original rate) or have her credit card cancelled. She chose the latter. She intends to pay off her balance and then dispose of her credit card.
Jamie is just part of the growing number of Americans who are appalled with these late game policy changes of card issuers. According to a nationwide survey, 77% of Americans say that card issuers are jacking up interest rates so that they could take advantage of the time left in their hands before the Credit CARD Act gets implemented next year.
Also, 50% of respondents in a research study said that they have received interest rate hike notices from banks.
A finance expert interviewed, said that recent actions of banks to hike credit card fees are not unusual in a sluggish economic environment. He said that compared to other loans, credit cards have less protection against defaults. When a person is delinquent with his car payments, his credit company may repossess his car, or if a person fails to pay his mortgage, his house will be taken away from him. In cases of credit card bill defaults, no such contingencies or arrangements are available to card issuers.
In a depressed economy, a lot of people end up skipping or dodging their credit card obligations. Thus, banks are forced to mitigate damages by passing off their losses to consumers.
Another finance person interviewed said that he believes that banks are bracing themselves for the Credit CARD Act which will become a full-fledged law next year. He said that this bill, once in place, will alter the way credit card companies operate. Since in the future banks cannot impose fees at will, they would have to come up with fresh ideas to keep profit numbers at decent levels.
So now he said that standards would have to be revised, such as increasing the minimum qualifications for credit card approval, expanding card fees and implementing stricter lending guidelines.
He also commented that some provisions of the bill will be beneficial to consumers such as customers will now have the right to demand from banks a clear cut explanation on how late fees are assessed.