George S. May Business Blog

Credit card companies are raising rates across the board. Gouging or fair game?

As you may know, the House Financial Services Committee is meeting today to work on legislation that would propose sweeping changes in the credit card business. The president is meeting tomorrow with 14 executives of companies that issue credit cards and today Barney Frank has released a statement saying a vote on the credit card reform could come as early as next week. So what does this all mean?

Change is-a comin’.

This couldn’t come at a better time for those currently in credit card debt as interest rates have been skyrocketing, some as high as 29%, in recent months.

I have read quit a few columns and seen even more suits get on CNBC and run their mouth off about how credit card companies need to make money somehow in the difficult credit environment and consumers are at fault as they signed up for that contract. Well, I have put together a bit of information that I would like to share with the public relating to why I don’t think credit card holders are necessarily at fault.

Credit card companies, currently, are able to borrow money at the lowest interest rates ever and in turn are raising the rates across the board even if the customer has always paid their bill on time.

Here’s a great example:

JPMorgan Chase extended an offer called “The Life of the Balance”. Basically, the customer got a 3.99% interest rate on balance transfers for the life of the balance. Obviously, for those who had high-interest debt at the time, this seemed like a great way to shift to a low interest debt. In fact, it seemed like such a great deal that about 400,000 customers jumped on board. Well, what happened as a result? JPMorgan tore up the contract, doubled the interest rate, raised the minimum payment rate by 250% and added a $120 annual fee. You can read more on this story in an article I found on USA Today.

Now is when Mr. Know-it-all chimes in with:

Well there are thousands of credit card companies out there. If you don’t like your deal, go get another credit card.

Thousands of credit card companies, not really.

I read a study that said 6 companies actually account for 92% of the business. So in actuality there really isn’t the competition that one might think. Because of this, we see the 6 companies take on each others’ innovations in anti-consumer practices. That is why, in looking at the practices of major card companies like Capital One, Citibank, and Bank of America we see raised interest rates as well as slashed credit allowances across the board.

The fact that all of these anti-consumer tactics are being implemented at a time when consumers are most vulnerable is despicable. But, the worst part about the whole situation is that the consumers’ tax dollars are the very reason that the card companies are still standing. Without tax money, many of the companies would have been bankrupt. So, essentially the consumer gets gouged twice: with taxes and card fees.

Those who have had their agreed upon contract ripped up by their lender are encouraged to comment with specific examples.

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