Banks And Credit Card Issuers Increase Interest Rates On Consumer Credit Cards

It took a while to calm down so I could write this blog post. About the 13th of February I received a notice from my credit card issuer, Capital One, informing me that the interest rate and other terms for my credit card were all going up:

"At Capital One, we are committed to providing valuable customers like you with honest and open communications. Today, we're notifying you that terms of your Capital One account are changing... Due to extraordinary changes in the economic environment, we're reviewing our existing credit card accounts. Having considered these economic conditions, your account's current Purchase rate, and the length of time you've had this rate and account, we will be increasing your Purchase rate. We're also raising your Cash Advance and Default rates."

This copy seemed so dishonest. If the bank is having difficulty and is losing money with decisions its executives made about asset-backed securities, then say so. This copy makes it sound like the bank is an innocent bystander or victim in this financial and economic mess. The last time I checked, Capital One received about $3.5 billion in bailout money from taxpayers to facilitate credit and lending. The notice didn't mention that fact, or thank us taxpayers for the huge loan. Based on the text in this notice, Capital One is doing the opposite: restricting credit and lending.

More from Capital One's notice:

"The following changes will be effective for all billing periods that begin after April 17, 2009:
Purchase and Balance Transfer Annual Percentage rate (APR): A variable rate equal to 17.9% as of 1/28/2009. Your purchase and balance transfer APR may vary monthly. The rate will be determined by adding 14.65% to the Prime rate."

So, my credit card interest rate is going up from 10% to 17.9%, or more since the rate will be variable. That's a huge increase. I definitely have feeling that I've been mugged.

And why the two conflicting dates? Which date is the correct date: April 17 or January 28? The notice should have been worded more clearly. Consumers shouldn't need a PhD in finance to read a notice from their credit card issuer. More from Capital One's notice:

"Cash Advance Annual Percentage Rate (APR): A variable rate equal to 24.9% as of 1/28/2009. Your cash APR may vary monthly. The rate will be determined by adding 21.65% to the Prime rate."

I'm one of the lucky consumers who is able to pay off my credit card balance every month in full and on time. So, I haven't incurred interest charges on my Capital One credit card since 2004, when I paid off all of my credit cards. With a credit score north of 790 (which is higher than 98% of Americans), my credit is good. I don't do balance transfers and cash purchases with my credit cards. So, while I'm unaffected by the interest rate hikes, it's the principle of the matter that irks me. And other consumers have complained recently about Capital One's rate increase notices.

But not everyone is so fortunate. These huge interest rate increases will hurt a lot of consumers, and make it far more difficult for good customers to continue paying. More from Capital One's notice:

"Default Annual Percentage Rate (APR): A variable rate equal to 29.4% as of 1/28/209. Your default APR may vary monthly. the rate will b determined by adding 26.15% to the Prime rate. If we receive your payment three or more days after your payment due date twice within any 12 billing periods, we may increase your APRs immediately to the above Default APR."

Wow! The bank wants to charge late payers almost 30% interest. How can a consumer ever get ahead with a high interest rate like that. That's robbery. Consider this craziness: in Hong Kong Citibank agreed to limit credit card interest rates to 45%. Can you believe that? 45 freakin' percent! How nice of Citibank! How customer friendly of the bank!

Around the 17th of February, I received a similar notice from Discover Bank. The interest rate and terms for my Discover credit card are going up, too:

"We are changing the Discover Cardmember Agreement. these changes apply to your Account effective for billing periods that end after May 1, 2009... We are modifying the "Default Rates" section to provide that the Default Rate is a variable rate... Each time you do not make a required payment on time (a Default rate Event), we may increase the standard Annual percentage Rate for purchases, balance transfers and cash advances to a variable rate equal to the Prime Rate + up to 27.99%, but such rate will never exceed 29.99% (the "Default rate). At the same time, any special rates on purchases, balance transfers or cash advances will end, and the Default Rate may apply. As of November 28, 2008, the maximum Default Rate would be an Annual Percentage Rate of 29.99%..."

An interest rate near 30%! Can you believe that? Again, I'm one of the lucky consumers who is able to pay off my credit card balance every month in full and on time. So, I haven't incurred interest charges on my Discover credit card since 2004, when I paid off all of my credit cards. But not everyone is so fortunate. These huge interest rate increases will hurt a lot of consumers.

I called my grown son (age 23) to warn him to watch his credit card statements for interest rate increases. I also advised him to pay off his credit card balances as soon as possible, so he doesn't get stuck in a bad situation where his credit card balances rise so fast that he can't pay his debts.

So, what's up with the banks and credit card issuers? Why these notices with huge interest rate increases?

Many consumers would say the banks are doing it because they can.Yesterday's blog post by guest-author Bill Seebeck provided a more detailed explanation. The banks lost money in the asset-backed securities marketplace and are using any means necessary to increase revenues to avoid more financial losses. If that means screwing consumers, so be it.

My list of reasons why banks are raising interest rates so high:

• Because they can
• To increase revenues from bad investments and poor decisions by their executives
• Expecting consumers with credit card balances are unable to pay off those balances before the higher interest rates start
• Betting that more consumers will be laid off from work during 2009, and those people will run up large credit card balances
• Greed
• Comfortable that a compliant Congress won't do anything about it

If there's any good news, neither credit card issuer lowered the limits on my credit cards. That has happened to many consumers already. Will I shop around to switch to credit cards with better terms? You bet.

If you are furious (and I hope that you are) about these huge interest rate increases, I encourage you to contact your elected representatives in Congress and demand strong oversight of the TARP money received by Capital One and other banks. You might also send a letter to Richard D. Fairbank, Chairman and CEO of Capital One Financial Corporation (1680 Capital One Drive, McLean, VA 22102), and politely express your opinion regarding this decision to alienate their strongest customer base. You can also write to David W. Nelms, CEO, Discover Financial Services (2500 Lake Cook Road,
Riverwoods, IL 60015).

If you have received a rate increase notice from your credit card issuer, please share your story below.

Comments

[John Taylor]

George,

Didn't you read between the lines of Bill Seebecks' comments from yesterday? The banks are taking the TARP money and using it to throw a party as if they just got a juicy new account. THEY'RE INSOLVENT!! Until they have to open their books for a "stress test" they have turned their attention to credit cards as a whole new charade to make money, more money than before. And to get deep into collections with rates you might as well call usury to prise the last dollar from ther public (read more bonuses), before the big takeover. I say blow 'em up. Banking is broken. Scrap them all and start a new system without all that baggage. Same for insurance, only that shoe hasn't quite fallen yet. There, I feel better .... almost.

[Jason S]

Probably a good idea not to keep a balance these days... maybe even save something.

[Stan]

I canceled my 1998 zero balance Capital One card today. I refuse to bailout Capital One by paying 17+% interest along with the $3.5B 'loan'.

[George]

Stan:

Glad that canceling your card works for you. I haven't decided to cancel -- yet. Canceling seems to play right into their plan to get rid of the unprofitable customers who pay on time, and keep more of the slow-paying and interest-revenue generating customers.

I plan to call and complain and see if they will respond with a lower rate. Will keep you posted what happens.

George
Editor
http://ivebeenmugged.typepad.com

[Best Credit Cards in Australia]

I disagree on those banks from increasing their customer's interest rate. The rate should remain the same from the time the consumer took their credit card. Implementation of the increase should be apply only on those new customers

[HANNA]

so what can we do about the B of A unethical business practice ( interest rate increase ???? please anyone advice ??
it amazing how you can me mugged, and you cant do anything about it , and you can complaint to anyone , and you cant reverse the damage

[George]

Hanna:

Thanks for the comment. You raise a good questions. Here's my list of actions (in no particular order) consumers can do in response to a interest rate increase:

1. Stop using credit cards

2. Complain politely to the credit card isuer's customer service department and they may lower your interest rate

3. Close your account and switch to a lower interest rate card from a different bank or card issuer

4. Write to your elected officials and demand that Congress take some action to insert interest rate maximums

5. If your credit card is from a bank, switch your accounts (e.g., checking, savings, CDs, etc.) to another bank.

What suggestions do others have?

George
Editor
http://ivebeenmugged.typepad.com

[SLT]

Thank you for putting up this post. In the last few days I received a similarly atrocious rate hike notice on my major credit card account. I also do not keep a revolving balance but was disturbed by the tactics and the retroactive effective date--for all of the reasons you cite above. I have chosen a middle course for the time being, in that I will officially reject their rate hike (as they provide means to do) and then no longer use the card. The language they use seems to indicate that this does not in fact cancel the card, which leaves the credit availabile to me if I suddenly need it in an emergency. It also gives them the opportunity to lower the rate again later, after they receive my irate letter. Finally, this tactic punishes them slightly by making the company continue to put whatever minor financial investment it takes to keep the account open.

[Dorothy Goldenbusky]

I just received a notice from Bank Of America that they are changing my 7.9% interest rate card to a variable rate -starting at 13.9%. I paid off my card in January of this year and generally only keep $100.00 purchases a month on it-which I pay off monthly. The bank's reasoning is I changed my payment history. What does that mean?

[T. Krueger]

In the past few weeks I have received three notices about rate hikes. One bank did give me the option to opt out of the changes, but capitol one and discover both gave me one option-cancel the card. So on top of helping me increase my debt, they are now helping me to have a lower credit score. I know that we racked up the debt ourselves, but it sure would be nice if they just left the knife in and didn't choose to twist it or push it in any further! Thanks for the post.

[Donna]

I received a notice from DISCOVER 2 weeks ago that they were raising my interest rate----doubling it!! I do not carry a balance and have never been late with a payment. I sent them a message online and I got this canned response which outraged me- they never addressed the fact that my record was spotless. So I sent back another message saying I wanted to close my card because I was so angry but it would hinder my credit score so I will keep it open and just never use it and continue to send them messages about my anger. THEY RESPONDED BACK SAYING THEY WILL NO LONGER RESPOND TO MY MESSAGES THAT HAVE TO DO WITH THE RATE INCREASE!!!!!! Can you believe these people????

[Peggy]

I called Chase Bank and ask them about the increase in my credit card and I myself agree, yes I did purchase items on the card, but when you are in a severe car wreack, such as myself and loose your source of income because I am permanently disabled (and the other drivers that were drag racing and topped a hill and I was on the other side.....hit me head-on at a rate of 81 mph and no insurance on either cars, but I had insurance) and had to use credit cards until after 3 years of fighting for my disability finally get it, has had mine increased to 24% and another to 30%. What in the world can I do???????
It's a rip-off!!!
Any suggestions of who to call or write about this?

[BLK]

I don't know of any solution. I have supossely good credit, yet my cards have all raised the rates so I may have trouble meeting the increased minimum payment. I have always paid more then the minumum but they are making it impossible to do that anymoe.
I think we are finished. Regular Americans in the middle class are finished. Between the political leeches draining our blood for taxes so they can lead lives of big houses, travel, hiring prostitutes, etc. and the bloughted bank people who are changing the terms of credit from when they lured us in to these cards we are doomed...............

[Brooke]

I have just realized that my Washington Mutual credit card was bought by Chase and when I noticed this my bill was pass due of course there were late fees so I decied to look furher into the bill to find out my interest went from 9.99 to 29.99 I called the bank to complain and the guy says hopefully in a year or so we can lower those Okay this makes no sense to me I have (now) two credit cards with them the other is at 12.99 and I also have a checking and savings you would think they would want to keep me happy so I tell the guy put in my file that if something doesnt change soon I will close all credit cards and other accounts do you think he cared so I guess I am in with everyone else about getting raped.

[MSM]

The banks own our Congress. That is why they are jacking credit interest rates in advance of any "reform". That is, reform that may go into effect 13+ months from now (and is not retroactive).
The only way to end this madness is for us consumers to stop doing business with the banks. I've moved my financial business to my local credit union. I get a much better rate on both loans and deposit accounts. They offered me a Visa credit card at 5 1/2% APR, and a money market account at twice the going bank rate. Why didn't I do this sooner?

[ma]

I also saw a credit rate increase from AT&T Universal, a Citi Corp owned bank. I was 2 days late on my payment due to a normal human mistake on my part. I've been a customer for 13 years w/no late payments and they increased my rate from 2.99% to 25% for the next 12 months. I have called at least 3 times and spoken to so-called "managers" and they will not lower my interest rate. Are you freakin kidding me??? Why are we the consumers "bailing-out" the banks and get screwed in the process? Did I mention my FICO score is over 750? What the HELL??? There is no help for the common folks anymore. My blood is boiling and I am determined to pay this balance in the next 2months and NEVER use credit cards again.

[George]

Everyone: thanks for your comments. If your credit card is at one of the big 12 banks, you might consider closing it and opening a credit card account at one of the smaller banks, where you can get more personal service. The big banks are all about maximizing their profits at the expense of consumers, regardless of your credit score.

Peggy, BLK, and MA: if a polite phone call to your credit card issuer doesn't work, you might try to contact your Congressional Representative or Senators. They might intervene for you. Here in Massachusetts, my Congressperson (Stephen Lynch) spends a lot of time on ID-theft issues for seniors.

George
Editor
http://ivebeenmugged.typepad.com

[Steve]

It's not so much the rate hike as it is applied retro actively to existing balances. I agreed to pay these vultures at a given rate. If they want to increase the rate, fine. Just don’t bend me over with a retro interest rate. Wrong, just wrong. I could see a class action law suit arising out of this.

[George]

Steve: excellent point about the interest rate hike applied retroactively to existing balances. What the banks have done some cal legalized loan-sharking. Maybe we will see some class action lawsuits.

George
Editor
http://ivebeenmugged.typepad.com

[Bill in New York]

I also have been mugged recently...Cap One and Providian/Wamu/JPMorgan/Chase...I won't bore you with rates, as you all know what they did. Cap One is at $600, I will call them to try to negotiate the rate, but from reading the posts, it seems useless, so I'll pay those vultures right off.
The Chase card is $6700...that may be an issue. I've been paying much more than minimum for over a year, and I bet that may be part of the interest hike. I guess my objective is, dump as much cash on the card to drop the balance until paid off and not use it. Thanks for all the info from you people

[George]

Bill in New York:

Thanks for the comment. Sorry to hear you got "mugged" too. Yeah, it sucks. I suggest that you try a polite phone call to your credit card issuers, FIRST. You know the old saying, "you can attract more flies with honey than with vinegar."

I don't suggest to people that they cut up all of their credit cards and shift entirely to cash. In my situation, I slimmed down to 2 cards and use them for business travel -- and to maintain a credit history, should I need credit in the future. That keeps my credit score at about 790+. The same strategy may apply to you.

Good luck. Let us know what happens.

George
Editor
http://ivebeenmugged.typepad.com

[Randy]

Randy in Mpls, MN

I contacted Capital One after receiving my statement showing an increase from 3.9% to 13.9%!

The customer service individual seemed very... umm concerned, she went on to say since the economy was so bad they had no choice to raise interest rates. She did mention I had accured 20K points... as though this had anything to do with my 10% increase!

I guess this means if they need the money (which is debateable) they can simply increase their rates... huumm.. maybe I wish it was just that easy for me to ask for a raise to afford their 10% increase.

I personally can not continue to provide my business that has this "whatever" attitude. *Please forgive my bitterness.

[George]

Randy:

Thanks for sharing your experience with Capital One. Your feelings of bitterness are understandable. A lot of people are angry with the banks and their executives. Many of the larger banks received bailout/TARP monies which were designed to encourage lending. The banks have done the opposite and acted in their own arrogant self interest.

If more regulation of the banks is a consequence, so be it. IMO, banks that are too big to fail are too big. I believe that during the coming years, we all will learn that the portion of the Gramm-Leach-Bliley Act (GLBA) that allowed commercial and investment banks to consolidate will prove to be a bad idea. Bigger isn't always better, and there's the issue of risk.

Also, I'd love to see the 24% usury cap reinstated. Right now, it is legalized loan-sharking, with the help of a compliant U.S. Congress. Consumers are getting a bad deal.

George
Editor
http://ivebeenmugged.typepad.com

[Liz]

Here is another sad example of what the banks can do with the customers.
I have credit card with Bank of America. I set up the automatic payment so I wouldn't miss any payments. Couple months ago they raised my interest without notification. Because of the automatic payment I was not aware that my monthly payment was higher. The only letter received was the notification that I am in default and because of that my interest now is 26.99%. Called them right away. They were willing to get me back to 9.99% interest if I pay the difference, late fees etc. The requested amount was submitted the same day on Bank of America web site. Couple days later when I check the website the account was blocked. Called again and was informed that my payment was returned unpaid and that another fee was applied because of returned payment. When question why the payment was returned I was told that my bank account from which I was paying is closed. I was stunned because the money was going from my personal checking account every single month for over a year and my account is not closed. After hour on the phone demanding information on this suppose closed account I was informed that the submitted money for this payment were from the bank that is in different State from where I moved out 5 years ago. Here is the interesting thing. The online payment was assigned to only one bank where I currently have the checking and saving account and from which every month my payments were successfully made! Also making this express payment I only entered the amount of money that I wanted to be paid! That was all I needed to do! Nothing else. To me just seems that they needed to do something so they would have an excuse of not reinstating my account and have a reason to penalize me and forced me to pay 26.99% interest.
I really don't see any other explanation.

[George]

Liz:
Wow! Sounds to me like BofA searched for a reason to increase your interest rate. My suggestions:

1) contact your U.S. Congress person and ask for their help,
2) report this to the BBB,
3) Post this online at other consumer sites,
4) Move your accounts and $$ to a smaller bank that offers more personalized service
5) Write to your 2 U.S. Senators and demand more accountability and more consumer-friendly services by banks. What BofA is doing to you is, IMO, the opposite of what the TARP and bailout monies were provided to banks for

If I think of more suggestions, I'll post them here.

George
Editor
http://ivebeenmugged.typepad.com

[Judy]

Capital One raised my interest rate also, without notification. They said they sent a letter, I told them I do all my banking and paymens online, even get my statements online. There was no information on the Change of Terms on any statement. I did report them to the BBB and FTC and now I write my representative and senators to let them know what these cc are doing. It is dispicable and dishonest. The real funny thing is, last year they lowered my interest rate "because I was such a good customer" and I have a good credit score also. It would be nice if we could do a class action lawsuit or something. I feel they are cheating.

[M]

I have also been stung by CapitalOne by raising my interest rate- they claim to have mailed me the option to opt out. I have sent them two certifieid letters requesting them to address thier breach of our agreement, (which was that I pay on time and don't exceed my max and in turn they lend me money at a fixed rate). I have only recieved form letters in return. I have written my senator, to which I received a letter that just gave me an overview of the work they are currently doing and have done with the banking industry- nothing that could help me directly. I have written my representative- no responce as of two months. I don't have fund to hire lawyer. I don't have funds to hire a lawyer. I have read the terms of agreement regarding the card to look for a way to prove breach of contract. The terms are global and your original offer letter you recieve from the credit card company is considered part of the term/contract. Well who saves all that paperwork. You wouldn't - who would anticipate your credit card company could do this kind of thing.

I would like to join a class action suit if it has any chance.

I figue this interest rate hike will cost me $7000 in interest if I pay this off by paying the monthly payment I am making at the current time. I checking into small claims but you have to sue for loss of money - not loss of future money. I checked into the arbitration suggested on the written terms, but it looks expensive and I don't know if it is set up to address this type of issue.

I would love to hear from someone who has dealt with this successfully.

M

[Jeff]

I also received a sudden rate increase from 9.90% to 17.90% from my April 2009 to May 2009 statement. The rate increase was sudden without notice. I have rejected the rate and complained but Capital One has continued to charge me the 17.90% on a pre-existing balance. We need legislation t o prevent this "bait and switch" tactic by these credit card companies that increase rates retroactively.

[Gina]

Does anyone else see the correlation between the variable mortgage interest and credit card industry? Credit card interest rates will now push people over the edge. The banks are creating the same environment that existed with variable rate mortgages. With the incredible interest rate increases on credit cards, we will see the economy sink even further. People who were just holding on, will now be forced into bankruptcy as a result of the increase. In a time where our Country is in the worst state it has been since the Crash, the banking industry, rescued by the taxpayer, is now biting the hands that fed and soothed it!

[ray]

CHASE IS REAMING EVERY CUSTOMER AS HARD AS THEY CAN BEFORE JANUARY BELIEVING THE GOVERNMENT WILL NOT MAKE THE NEW INTEREST CAPS RETRO-ACTIVE!!

My wife & I HAD~~ one Chase card, 1 ea WaMu cards, & 1 ea ESPN cards (also owned by WaMu). Chase bank took all those billions of dollars of stimulus money we gave them & bought out WaMu. From that point on~~ they have continued raising out interest rates from as low as 7.9% to the point where the absolute lowest card we have now is 24.24%!
We both have nearly perfect credit scores, are never late on payments & never pay the minimum due.

I JUST GOT OFF THE PHONE WITH THEM & WAS TOLD "TOUGH LUCK PAL"~~ PAY THEM OFF OR CLOSE THEM OUT. HUMM~~ MAYBE I HAVE A BETTER IDEA! MAYBE I'LL JUST GO THROUGH ONE OF THOSE "COUNSELING" COMPANIES & LET THEM FIGHT OVER THE $100 A MONTH WE WOULD HAVE TO SEND EVERY MONTH RATHER THAN THE THOUSANDS WE DO SEND EVERY MONTH! DOESN'T HELP "STIMULATE" OUR CREDIT SCORES BUT THEN AGAIN~~ CHASE BANK IS NOT OUT TO "STIMULATE" ANYTHING BUT THE BONUSES & SALARIES OF THEIR CEO's!

I FIND IT APPALLING THEY HAVE BECOME SO DETERMINED TO DESTROY WHAT'S LEFT OF OUR ECONOMY DURING THESE TIMES.

I FIND IT APPALLING THAT THE DEMOCRATIC PARTY IS STILL ALLOWING SUCH USURY & GREED FROM A COMPANY WHO GLADLY TOOK 100'S OF BILLIONS OF OUR TAX DOLLARS TO "STIMULATE" THE ECONOMY.

ALL THEY ARE DOING IS DRIVING MILLIONS OF FAMILIES INTO THE BANKRUPTCY COURTS OR TO ONE OF THOSE OTHER SHYSTER "WE CAN WIPE OUT YOUR CREDIT DEBT" COMPANIES (YEA~~ FOR 33% OF EVERY DOLLAR THEY SAVE YOU!)

I AM GOING TO SPREAD THIS TO AS MANY BLOGS AS I POSSIBLY CAN HOPING TO INTEREST ANY PARTIES WHO MAY WISH TO ENTER INTO A CLASS ACTION SUIT AGAINST CHASE BANK & THEIR COMPLETELY OUT OF HAND GREED DRIVEN PRACTICES.

MY LATEST INCREASE IS ON A CARD THEY JUST INCREASED A COUPLE MONTHS AGO! WENT FROM 7.9% TO 24.24% TO THIS CURRENT 29.24%~~ JUST BELOW THE FEDERAL USURY GUIDELINES. MAYBE THEY GOT MAD BECAUSE I MADE 2 PAYMENTS THIS MONTH? HECK~~ I COULD DEFAULT & THEY COULD ONLY GO UP ANOTHER 0.75%!!

MY WIFE IS AN ATTORNEY & I WOULD LOVE NOTHING MORE THAN TO ACCUMULATE A FEW MILLION LITIGANTS TO COMPOSE SUCH A SUIT.

ANY HELP FOR SOMEONE WITH MORE KNOWLEDGE THAN MYSELF ON SETTING UP A WEBSITE WHERE PEOPLE CAN FILE THEIR COMPLAINTS WOULD BE APPRECIATED.

THEY ACTUALLY HAD THE AUDACITY TO USE THE TERM "IN GOOD FAITH" WHILE PRINTING OUT THESE "PLEASE BEND OVER PAMPHLETS!