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Credit Cards Giving Consumers Heartburn

Consumers at banks' mercy until new law takes effect

By Mark Huffman and Martin H.Bosworth
ConsumerAffairs.com

June 30, 2009

But neither the new rules nor the new law take effect until next year, and if anything, credit card customers are even more miserable. While Chase customers are currently the most vociferous, other lenders are also drawing complaints.

Jacqueline, of Sacramento, says she had been paying nine percent on her Bank of America credit card for years, always paying on time. She says she considers herself "a good customer." Last week she was notified her nine percent rate was being raised to 25 percent. And that wasn't all.

"This was a high-limit card with a balance of $5000, but they then lowered my limit to just $200 above the balance owed on this card," she told ConsumerAffairs.com. "They gave me no notice of these actions and I could have easily gone over my limit by making one $200 purchase. I'm sick about this, they are ruining my credit and my husband and i are trying to buy a home."

Bank of America isn't the only lender raising rates. Hector, of Ventura, California, has a Capital One card.

"I opened my Capital One statement this morning to pay my July payment. I was shocked to see the interest rate skyrocketed from 9.90 percent to 17.90 percent," he told ConsumerAffairs.Com. "I called the customer service line and was told a notice was sent earlier this year about this change. However I never received a notice. He told me it was not for my performance but for economic times."

John, of Lexington, Kentucky started with an MBNA card at 7.99 percent, before the bank was acquired by Bank of America. After one payment the credit card company said was late, he says his rate for raised to 17.99 percent. That was four years ago, and at a rate of 17.99 percent you might not think John' would be in danger of having his rate raised. But you would be wrong.

"Even though we pay on time, they just raised the rate to 27.99 percent," John told Consumeraffairs.com. "They blame it on the government."

"Bad investments"

Banks may be acting now to maximize returns before new rules take effect that give consumers more leverage, though under the new law they still have the ability to raise rates when a payment is late. The fact that Chase this month has increased the monthly minimum payment for its customers with lifetime low rates allows the bank to regain money that is earning low rates and lend it out again at high rates. Should the higher rates cause some consumers to default, the low rates will go to 18 percent or higher.

Lauren Zeichner Bowne, staff attorney for Consumers' Union, confirmed that banks are raising rates, cutting credit lines and imposing more fees in order to "recoup from their bad investments and losses."

"We're also seeing signs of fees being raised on regular bank checking accounts," Zeichner Bowne said. "'Courtesy overdraft' fees are a huge profit center for banks, and we're hoping to get stronger regulations passed against them."

The new rules

Once the Credit Card Holders' Bill of Rights takes effect, credit card companies must live under these rules:

• Creditors cannot increase the annual percentage rate (APR) during the first 12 months of opening up an account.

• Creditors are required to provide consumers with a 45-day advance notice of changes in rates and significant contract changes. Rates that change due to a change in the index that the rate is based on are excluded from this 45-day notice requirement.

• Promotional rates need to be in effect for at least six months from the beginning date of that promotion.

• Creditors need to provide a 30-day advance notice of an account closure.

• With certain exceptions, credit card issuers are prohibited from charging a finance charge based on the double billing cycle method.

• Creditors are prohibited from charging a fee on an outstanding credit card balance at the end of the billing period if the fee is attributed to the interest accrued on an outstanding balance that was fully repaid during that preceding billing period.

• Consumers have the right to reject a new credit card after the creditor notifies a consumer reporting agency of its corresponding account.

• Creditors are required to remove information provided to a consumer reporting agency about newly established credit card accounts if the consumer has not used or activated the account and and if the consumer contacts the creditor within 45 days of its establishment to close it.

• If two or more different APRs apply to different portions of an outstanding balance, the amount of any payment above the required minimum payment needs to be applied to the balance with the highest APR first and then to lower APR balances.

• Creditors are required to provide a grace period for payments even if the cardholder takes advantage of a promotional rate balance or deferred interest rate balance.

• Creditors are required to send credit card statements at least 21 days before the due date of the outstanding balance.

• Creditors are prohibited from providing credit to consumers under age 18 (unless they are emancipated under state law, or the consumer's parent or legal guardian is designated as the primary account holder).

• For college students who do not have a co-signer, the maximum amount of credit extended will be limited to the greater of 20 percent of the student's annual gross income or $500 dollars. The aggregate amount of credit extended from all of their credit cards will be limited to 30 percent of the student's annual gross income (for the recently completed calendar year).

• Creditors are prohibited from opening a credit card account for any college student who does not have any verifiable annual gross income or already maintains a credit card account with that creditor, or any of its affiliates.

• Creditors are prohibited from charging a fee to make telephone and web-based payments. However, a fee may be charged for expedited telephone payments made on the due date or the day before the due date.

• Creditors are required to post their written credit card agreements on the Internet.

"Shine a light"

Until the new rules take effect, however, consumers are bluntly being told that the old rules apply. Zeichner Bowne said there was little customers could do, but there are a few options.

"The best thing you can do is pay the balance down as fast as you can," she said. "You could cancel the card, but that could do long-term damage to your credit rating. Paying it off on time, keeping your debt-to-credit ratio low — that's really the best option."

Cardholders who are suffering undue harassment or hardship can file a complaint with the Office of the Comptroller of the Currency (OCC), the federal agency most directly charged with overseeing consumer protection in the financial industry. The OCC has a dedicated Web site for consumers to file complaints against banks, although it's not easy to find on the OCC site.

"[Chase's policies] are the first big sign of systemic changes we're seeing since the regulations got passed," Zeichner Bowne said. "They'll be a big help, but until then, shining a light on these practices is very important."

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