The Next Meltdown: Credit Cards

[dew4au]

So my wife was opening the mail today, and low and behold, her CitiBank informed her that her APR was jumping from 6.25 to 16%. The back of the insert said that if she wanted to opt out of the new conditions all she had to do was call their 800 number. She gives them a ring and they inform her that if she opts out then they will be closing her account and that the full balance will be due in February. I found this a bit odd since she's never missed a payment, or even made a late payment.

Now this isn't a big deal to us, since we have a low balance and the means to pay it off, but what about the people that aren't as fortunate. Here's an article I found on Citi's Situation.

Apparently, since the financial markets have tightened up, credit card companies are having to work harder to securitize their debt. To make the credit card debt more attractive, they're increasing rates.

Now, I understand that some people have been living beyond their means, and have accumulated large amounts of credit card debt due to their lack of self control, but some people are just trying to survive hard times.

Enter HR 5244. It passed the house and is now being debated in the senate.

-Protects cardholders against arbitrary interest rate increases
-Prevents cardholders who pay on time from being unfairly penalized
-Protects cardholders from due date gimmicks
-Shields cardholders from misleading terms
-Empowers cardholders to set limits on their credit
-Requires card companies to fairly credit and allocate payments
-Prohibits card companies from imposing excessive fees on cardholders
-Prevents card companies from giving subprime credit cards to people who can’t afford them
-Requires Congress to provide better oversight of the credit card industry
-Contains NO rate caps, fee setting, or price controls.

Something like this would be great for consumers. But it would limit the credit card company's ability to repackage our debt. I don't think cardholders should have to pay for the problems the financial system created.

What do you guys think? Have your rates been hiked? Are you in favor of the cardholder bill of rights?

[Quads]

Any time a credit card company jacked my interest rates, I closed my account.
It makes sense and I support them doing it for high risk / or higher risk customers who carry balances month after month after month, but in all cases I was anywhere from a 790 to an 805 with zero balances in each case but one, where I had a few dimes on it, so in no way was I a risk to them.

Close the card, send me the bill. Pay it, good riddance.

Remember this, you don't need their credit card.
They need you.

Tell them to keep the interest where it's at or you'll close the account. If they jack with it, close the account and tell them to suck it.

My $0.02 (at 19.9%)

[sleazius]

The cheapest cards in Australia are around the 12% mark, with most cards being around the 18% mark. Up until a couple of years ago it wasn't uncommon for most banks to have their credit card rates between 24-28%.

Banks giving out credit too cheaply and without checking a person's ability to repay the debt, is what caused this in the first place. I wouldn't be surprised if most of your credit card companies follow the same route.

[abby99]

I have no idea what the interest rates are on my cards. I pay the entire balance every month and don't recall the last time I paid any interest charges or fees. They probably hate me.

I wouldn't close these accounts if my rates increased because doing so would adversely affect my FICO score. 20% of nothing is still nothing. On the other hand, if one of them figured out a way to charge me even if I paid in full by the due date every month, I'd close that account so fast that somebody would have whiplash, or maybe I'd just leave the account open without using it, knowing that they incur a cost to carry the account on their books even if it's dormant.

[Mango]

To me the interest rate is irrelevent. I use my card to buy everything, use the 50 day interest free period so that my full wage is against my homeloan (reducing interest) and then pay the card entirely every month so i accrue no interest.

My card(as a part of my home loan package) annual fee has recently increased though by $50 from $200 to $250.

I am able to do the above because I have good financial responsibility, i would think that 99% of people who have credit cards use them inoppropriately and are in debt for frivilous purchases.

In saying that though 'trapping' someone into a life of debit through a low % plan and then jacking it up when they have racked up some debit isn't very ethical and does need some regulation.

For me, I believe a creditcard should be a contract with fixed limits, I dont believe in the 'bank can change anything it wants whenever it wants' attitude.

[dew4au]

Yes, it's very nice to be able to pay off your balance every month and use all of those points/rewards for free. If you've never carried a balance, you may not care about the rate hikes because you think it just does not affect you.

Many people do carry balances, unfortunately. Like I mentioned earlier, the card companies are having to raise rates in order to securitize the debt. There has to be a point of diminishing returns for this strategy, and when the rate increases cause more defaults than returns, they'll really be in trouble.

They'll have to start doing things like getting rid of rewards programs. Then they'll start with annual fees on all cards. Then it'll be transaction fees.

The point is: it's nice to use all of the features and rewards our cards have to offer, but keep in mind that we get these at other's expense. I got double skymiles on my last purchase because someone else irresponsibly bought a Gucci bag and is now paing 35% on their balance.

[Josh]

Originally Posted by abby99

I have no idea what the interest rates are on my cards. I pay the entire balance every month and don't recall the last time I paid any interest charges or fees. They probably hate me.

I wouldn't close these accounts if my rates increased because doing so would adversely affect my FICO score. 20% of nothing is still nothing. On the other hand, if one of them figured out a way to charge me even if I paid in full by the due date every month, I'd close that account so fast that somebody would have whiplash, or maybe I'd just leave the account open without using it, knowing that they incur a cost to carry the account on their books even if it's dormant.

Abby, don't worry, they still make some coin on those purchases although you don't pay it out of pocket.... They still love you.

BTW, FANTASTIC point on not closing old accounts. Your credit score considers both the length of your oldest credit accounts as well as your debt/available credit. Closing an old card (probably with a pretty good limit) would be a double whammy. Funny isn't it? Close an account, take a credit score hit?

[dammitjim]

Great thread, I'm really interested to hear if this is happening alot.

[Wooderson]

Originally Posted by dammitjim

Great thread, I'm really interested to hear if this is happening alot.

It is happening a lot. Companies have been doing it for the last six-ish months. I haven't heard of the "if you opt out we close your account and the balance is due in full by XXXXX date" until now, but with the crap Citi is in, I'm not surprised.

[ttflyr]

Originally Posted by Wooderson

It is happening a lot. Companies have been doing it for the last six-ish months. I haven't heard of the "if you opt out we close your account and the balance is due in full by XXXXX date" until now, but with the crap Citi is in, I'm not surprised.

I believe all credit cards have listed "payment due in full" as a collection option.