CC rates Double? Even for good Customers...

[mickeyd]

Most of you folks do not pay CC interest anyway however, this may affect your friends, relations and those who think that their good credit will keep them above the fray.

Quote:

The major credit-card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase, according to copies of five letters obtained by BusinessWeek. Fine print at the end of the letter -- headed "Important Amendment to Your Credit Card Agreement" -- advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer.

Yahoo! Personal Finance

[dex]

Maybe this will be a wake up call for those people and they will begin to pay off the cc and then save!

[growing_older]

Fed is lowering funds rates, so costs of funds for the CC companies is dropping. Are defaults rising so much that costs are doubling? Or are CC companies figuring this is the time to crank up rates and make a killing as debtors alternatives such as cash out refinancing from their house is more limited than usual. Sounds predatory, but then some of that short term credit business plan always sounds a bit predatory.

[Notmuchlonger]

Quote:

Originally Posted by dex Maybe this will be a wake up call for those people and they will begin to pay off the cc and then save!

Id rather see people keep on spending while I save

[nepo]

From the linked article:

Bank of America is trying to get ahead of Amanda Pennington, 29, of
 Euless, Texas. She says the bank raised her credit limit three months ago
 from $5,000 to $8,000 because of her strong payment history. Then she
 got the letter from the bank in mid-January notifying that her rate would
 rise from 15.74% to 25.99%. When she called, she says, the bank told her
 it was raising her rate because her balance was now too high, though it
 was still under the higher new limit the bank had previously granted. After
 paying tuition for a community college course, transferring another
 balance, and paying for daily expenses, Pennington's Bank of America
 debt now stands at $7,500.

The bank gives you a higher new limit, you think it's ok to get close to it, give them more business by charging more to the card, and you get trapped for a higher rate. It's not clear however whether the customer's actions got reflected in a lower FICO score (they should eventually) or the bank acted using its own unpublished guidelines. But it does smell like predatory to me.

[brewer12345]

Quote:

Originally Posted by growing_older Fed is lowering funds rates, so costs of funds for the CC companies is dropping. Are defaults rising so much that costs are doubling? Or are CC companies figuring this is the time to crank up rates and make a killing as debtors alternatives such as cash out refinancing from their house is more limited than usual. Sounds predatory, but then some of that short term credit business plan always sounds a bit predatory.

Cost of funds for CC lenders has actually risen quite a bit in the last 6 to 9 months, as the stress in the mortgage markets has bled into other forms of consumercredit (auto loans, CCs, etc.). And defaults are up, although not precipitously so just yet. Go look at the earnings report of any big card issuer and see for yourself.

[Helena]

Speaking of paying off cc debt .... check out this UK article and quote:

Good payers face being axed by credit card firms

**

" Gillian Cox, from Farnham, Surrey, said she was “absolutely furious” to learn that her card had been cancelled in what she described as an “unbelievable arbitrary action”. She said she and her husband were retired with no mortgage and no debts and “always pay the balance off in full each month”.

Trevor Smith, from Nottingham, who also pays off his balance each month, has had his card cancelled too. “It’s disgusting that they are making out it’s just the bad ones who are being dropped,” Smith said. “Good riddance . . . if that’s how they treat people.”


One industry insider said that, as businesses, credit card providers had a right to ditch clients who did not generate income. “In the past two years more and more customers have been paying off their credit card debt and that means less in interest charges and other fees for the provider,” the source said.


MBNA, the credit card giant, recently introduced annual charges for those who very rarely used their accounts. "




Good payers face being axed by credit card firms - Times Online

[brewer12345]

Good borrowers have a choice: they can go to the banks that are better to deal with. I really doubt that BofA will ever even think about slapping me with fees, reducing my limit, etc. because it is an account that has Schwab's name on it. No quicker way to PO a valuable customer than to start arbitrarily hitting them with fees. And if they did, my business would quickly move to my debit card or a Pen Fed visa.

But those who are carrying the anvil of CC debt may not have those choices.

[Meadbh]

Quote:

Originally Posted by Helena One industry insider said that, as businesses, credit card providers had a right to ditch clients who did not generate income.

I think that's quite legitimate for a for profit business. Unfortunately, in my industry (healthcare in Canada), while we are unable to realize profits, we are also unable to ditch clients who cost us a bundle.

[nepo]

I wonder if this cancellation of credit cards for people who don't carry a balance is happening in the USA also since the regulations are different. I can see charging fees for everyone by some CC companies, but I haven't heard of this particular practice here yet. The article is from the UK.

BTW, people who pay their balance in full every month are call deadbeats by the CC companies. We are "deadbeats" but we still keep getting CC offers every day.

[Helena]

Quote:

Originally Posted by nepo I wonder if this cancellation of credit cards for people who don't carry a balance is happening in the USA also since the regulations are different. I can see charging fees for everyone by some CC companies, but I haven't heard of this particular practice here yet. The article is from the UK.

Yes, as I posted, it is a UK article... but did you notice this part:

The lender, part of the American banking organisation Citi-group,

[Marquette]

I get wanting to drop people that don't use their card at all. However, I would think that the servicing fees they collect from merchants would be enough incentive to keep frequent card users even if they don't carry a balance.

Personally, I'm very happy to use my credit union's card and I doubt they will be dropping me any time soon, even though I do pay the balance off monthly.

[Walt34]

Quote:

Originally Posted by Helena One industry insider said that, as businesses, credit card providers had a right to ditch clients who did not generate income. “In the past two years more and more customers have been paying off their credit card debt and that means less in interest charges and other fees for the provider,” the source said.

I think the CC companies are just being greedy. The two to five per cent of the gross sales they get from the merchants isn't enough?

[Notmuchlonger]

Quote:

Originally Posted by Walt34 I think the CC companies are just being greedy. The two to five per cent of the gross sales they get from the merchants isn't enough?

Why is it greedy? Its a business and they need to make their shareholders profit.

[myself]

The article mentions MBNA. Do they still exist in the UK?
Bank of America bought them out, and they no longer have a stock symbol (it used to be KRB).

We too pay our CCs off in full every month (except the low BT rates moved into EmigrantDirect until the month before it comes due).

[nepo]

Quote:

Originally Posted by Notmuchlonger Why is it greedy? Its a business and they need to make their shareholders profit.

It's short-term thinking. Fact is that Citi is in big trouble. Discarding their low risk customers just makes the company depend more and more on fees and usury rates they can charge their lower quality customers that remain. But eventually those remaining customers will start defaulting and perhaps they are starting that trend already.

Does subprime mortgages ring a bell? How much profit did Citigroup made on that?

I was a long time customer of Citi credit cards. But I never carried a balance and my FICO has been above 800 for a long time. They sent me a letter about 2 years ago changing the terms, including raising interest rates. To opt out I had to write them a letter. I did. One month before the expiration date of the card they sent me a letter asking me to reconsider, citing all the great "value" that the card offered. I put it in the trash can in no time.

[ERD50]

I pay mine off each month and they are giving me money to do so (cash rebates).

If they don't want my business, they sure are going about it funny. Heck, AMEX even sent me flowers, a dozen roses (? I would have preferred cash....) during the holidays.

-ERD50

[FinanceDude]

Well, there is the dreaded "Universal Default Rates", that a number of the CC companies still have. I think Citi and Chase no longer offer those cards, but that doesn't cover the MILLIONS of those cards that are already out there.

If the CC company feels you are using too much of their credit, regardless of whether you pay on time or not, they can raise your rates as high as 30%.

I have heard of risk premiums but that's a little ridiculous.........