Banks say Thank You: Loan Shark Rates on Credit Cards
November 17, 2009
By Terry Smilijanich:
America’s major financial institutions received billions and billions in taxpayer bailout money last year. How did they repay the favor? Simple – they went to war against their customers by raising interest rates, penalties, and fees on credit cards, ever since.
Rate Hike Binge
Congress saw this coming as early as February of this year, and passed the “Credit Card Accountability, Responsibility and Disclosure Act of 2009,” preventing such companies from raising interest rates and penalties to new outrageous levels. Good law. One small problem.
The effective date for such reforms was postponed until February, 2010! Yes, our financial institutions have great lobbyists who know how to work Congress to their liking.
So, given the fact that they received bailout money, and were facing a new law that would prohibit them from raising rates without limits next year, guess what credit card companies like Chase Manhattan and Bank of America did? You guessed it. They went on a binge of interest rate hikes. Even for their good customers. For example, Bank of America raised its rates from 5.99 percent to 14.99 percent. Combining all of its rates for various transactions, B of A has ended up charging an annual percentage rate of 35.97 percent, a rate that would even make a loan shark like Tony Soprano blush.
Congressional Action and Congressional Loopholes
The Credit Card Accountability Act contains several new safeguards for the credit card customer, such as:
- At least 45 days notice of any interest rate increase or significant change;
- A reduction in the ability of companies to impose hair-trigger penalties for a late payment (three days late? sorry, your rate just doubled)
- A requirement that such companies periodically re-evaluate their rates in light of current conditions, whether in the markets or in the personal circumstances of their customers;
- Companies are required to apply any payments on an account to those balances carrying the highest rates of interest;
- And many other such provisions seeking greater equity for credit card customers.
But, with an effective date of February, 2010, the financial institutions engaged in a frantic gold rush, raising rates, penalties and fees almost monthly, trying to beat the looming deadline for mandatory compliance.
Pew Study – They’re All Cheaters!
In October, the Pew Charitable Trusts issued a report on the current practices of the major credit card companies. It found that among the 12 largest credit card issuers, accounting for more than 88 percent of outstanding credit card debt, all of them (yes, all) engaged in unfair and deceptive practices, including handling payments in such a way as to maximize profits to the detriment of the cardholder, raising interest rates at any time and without warning, and imposing penalty interest rate increases, even for the most minor infraction.
All of the practices, the Pew study concluded, placed cardholders at risk of sudden and potentially drastic price increases.
Congress to the Rescue, Again
In response to this example of unbridled greed by the same financial institutions we all helped out last year, the House in early November passed the “Expedited CARD Reform for Consumers Act,” attempting to place a moratorium on sudden rate, penalty and fee increases, and moving the effective date of the earlier reform act to the present date.
The Senate is currently debating its own version, calling for an effective date of December 1, 2009.
Thanks a lot, Congress, for the quick action. Like the farmer whose horses have all gotten out of the barn, but is busy installing a shiny new lock, the remedy is too little and too late.
And the financial institutions? With Chase’s CEO James Dimon bringing in $27.8 million in individual compensation lat year, and Bank of America’s Ken Lewis raking in $24.8 million, while taking taxpayer bailout money and increasing rates and penalties to all time highs – I have only one question. How do you sleep at night?
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