Cardholders Upset Over Credit Card Changes
January 13th, 2009 by Kenneth Long
Credit card companies gave in to congressional pressure in 2006 to avoid some unpopular practices that had aggravated cardholders. As a result, increased regulation did not occur at that time. However, recent changes have prompted new action by the Treasury’s Office of Thrift Supervision. For many cardholders, these new regulations will not be in place soon enough to make a difference.
Credit card companies have begun raising interest rates and making other changes to accounts in order to increase revenues and reduce default risks. The problem is that some actions may have actually increased default risks. Here are the changes that some major card issuers have made in 2008:
- American Express changed terms of their credit card accounts to increase interest rates on purchases and fees for late payments. Foreign transaction fees have increased, but they are still less than what others charge.
- Bank of America has raised interest rates on many of their card accounts. Also, many cardholders have recently had credit limits lowered. My limit was recently raised, so any reduction in your credit limit is apparently a result of periodic account review inquiries that suggest financial weakness.
- Capital One changed their minimum payment calculation. This could result in some cardholders experiencing an increase in their minimum payments.
- Chase has implemented substantial minimum payment increases from 2% of the balance to 5% of the balance. Additionally, a $10 fee has been added to many accounts. These changes do not apply to all accounts. Most cardholders that experienced the changes had taken advantage of a low-interest balance transfer offer at least 2 years ago. Affected cardholders could see their minimum payments increase 150%. For example, a $10,000 balance would require a minimum payment increase from $200 to $500 a month.
- Citibank has raised its purchases interest rate and has increased the penalty rate charged to late payers. In addition, Citi’s Sears cardholders may no longer have extra payments applied toward the following month’s minimum payment.
- Discover had only minor changes that matched what other card issuers had also done. They removed the cap from balance transfer fees.
The Treasury has declared a deadline of July 1, 2010 that all credit card issuers must comply with new regulations. These restrictions will keep card issuers from raising interest rates on existing balances for “any time or any reason.” They will also lock in interest rates on existing balances, so that any rate increases would only apply to new purchases.
Many cardholders have experienced frustration with the recent changes. Some consumers have expressed anger at changes made to existing balances that they believed were locked into a deal for the life of the balance. Other cardholders have allowed accounts to lapse because they cannot afford to make the higher payments.
Some relief is on the way to cardholders that find they cannot afford to keep up with their payments. However, the regulatory relief will not reach most of them in time to make a difference. Instead, if you are in trouble now, you should get help through credit counseling before you find yourself in a hole from which you cannot escape.
If you believe that your credit scores are still good but you have experienced adverse changes to your credit account terms, then there is a good chance that your bankruptcy risk score has changed. It could be the reason for your high-risk classification.
This entry was posted on Tuesday, January 13th, 2009 at 11:46 am and is filed under Consumer Protection, Credit Cards, Credit Cards: Amex, Credit Cards: B of A, Credit Cards: Capital One, Credit Cards: Chase, Credit Cards: Citibank, Credit Cards: Discover. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
January 23rd, 2009 at 11:03 pm
Ken -
The BIG issue in my opinion w/the Chase terms changes, is the fact that they offered NO opt-out. How can such a unilateral, change-it-to-whatever-they-want-to terms change be legal?
==== WHAT CHASE HAS DONE: ====
Essentially, they have told (from what I can gather), between 400,000 and 700,000 account holders (who generally have NOT MISSED A PAYMENT, and otherwise have GOOD CREDIT HISTORIES, *BUT* are carrying a less-profitable-than-Chase-would-like balance (i.e. < 5%)) than they (the account holders) have one of two options:
A) Multiply their minimum payment by 2.5x, and add a $10 out-of-nowhere new finance charge (which remains even when there is no balance).
OR
B) Keep their existing (already established, and I would think contractually binding) minimum payment, but DOUBLE THEIR ANNUAL PERCNETAGE RATE.
There is no opt-out offered, regardless of whether the account remains open or is closed (I have confirmed this); it’s A, or B.
As well, if the account holder takes offer “B” (essentially under duress / coercion, for many folks, due to cash flow constraints), Chase will make NO guarantees that they won’t just shaft you again in 60 days, or whenever they feel like it. (Also confirmed).
==== IF THAT IS LEGAL, WHAT *ANY* CREDIT CARD COMPANY *COULD* DO: =====
I’ve been a fine-print-reading credit card holder for 20+ years, and have NEVER before seen a unilaterl, no-opt-out-available (even if you close your account!) terms change. EVER.
If this IS legal (unilateral, no-opt-out terms changing), then:
1) What is to prevent the options above from being:
A) Minimum payment of 5x its current amount, and a new “finance charge” of $100/month.
OR
B) Quadruple the APR
From a legal perspective (in terms of what is allowable), I see no difference. What Chase is doing seems to be, at its essence, nothing more than this: Reneging on an existing, already-negotiated / agreed-upon / accepted / binding contract, and unilaterally changing it.
2) What can possibly be done by credit card holders (w/existing balances) to ensure that the terms of their cards remains as initially agree-upon?
As far as I can tell, the answer to the above two quesitons is simple: Nothing.
…and that isn’t just flat-out WRONG, it’s heinous. True, mafia-backed loan sharks are likely more ethical.
These folks need to be corporately body-checked, and quick. If not, the economic implications to the greater economy is just, well…. stunning. All the credit counseling in the world can’t help if this kind of one-sided, unethical power-grab becomes the norm.
P.S. See ChangeInTerms.com for more info on this specific situation. I have no affiliation w/the guy, but his story is transparent, and his experience base (College prof who testified before Congress) makes his point of view more credible than most, IMO.
January 24th, 2009 at 2:43 am
Dear ZDonovan,
Thank you for the post about me, and my site, ChangeInTerms.com. I know it’s very frustrating, and of course, that was my motivation for “letting it all hang out,” by telling my personal story. I do think that there are ways to fight back. Chase is playing games under the law, which essentially, does not exist with respect to any protections that may be afforded to consumers.
Nevertheless, what Chase is doing is flat-out wrong on any ethical basis whatsoever, and sooner or later, these despicable individuals who are behind Chase’s actions will have their day in the “court of public opinion.”
As a professor by virtue of my current employment, I found it very ironic that the Thunderbird School recently had Gordon Smith (CEO of Chase Card Services) deliver a lecture on leadership. As I said in my post concerning that appearance, lying before Congress (Chase Executives’ testimony argued that the company treated customers “fairly,” by providing opt outs) is certainly not an example of leadership.
These tyrants will fall, at the hands of consumers and an outraged public, before regulators (who have a very cozy relationship with banks) ever get around to protecting consumers. I admit, I am often tired, holding a “day job,” and fighting credit card company abuses at all other times. But, I am also inspired, and your understanding post gives me the energy to fight back.
March 10th, 2009 at 9:23 pm
JP Morgan Chase SUCKS and they are scumbags. They changed the terms on our credit card. They added the $10 service feee and increased the min payment from 2% to 5%. We got the balance transfer for life at 3.99 and never missed a payment and have 790 fico score. They are taking all our tax money and screwing all of us tax payers TWICE. I’m telling everyone NEVER USE CHASE..tell everyone you know to boycott using their products. Write the government, write the better business, etc. Make sure you tell everyone to NOT USE CHASE!!!
April 3rd, 2009 at 2:22 am
Citibank Unfair Practice ~~ FTC Act Section 5, Amended 1994
I am seeking Citibank Credit Card holders who have had their credit reduced, shutoff, had a restriction put on one or more of their accounts or a combination of these in the time period from 2007 to present. This action taken by Citibank can not be at direct fault of your own as in a bankrupcy, default, failure to pay, etc. or other matter that would have created a negative mark on your credit bureau report. Basically, you were in good shape, had a good payment history and without warning they closed everything down or extremely limited credit. You must be in the USA. I have 3 people so far and to meet the requirement of numerosity of Fed.R.Civ.P. 23(a), I need to hear from at least 37ish more people in the country that have experienced this unfair business practice. Less people still might allow me to get a judge to certify it, but I would prefer to have more to be safe.
I am not a lawyer, but I am preparing the claim to proceed in pro se and if there are enough simularly situated folks, then a lawyer is more likely to pick this up on contingency and carry it forward as a class.
Do NOT put any credit card numbers, account info or anything personal in your reply to me. Just tell me that you exist and a summary of what happened. In the discovery phase of the case, the court might ask so be prepared to get a response in some way so you can give your two cents.