Capital One’s Credit Trap

Way back when we were 19 years old and getting our first credit card, Capital One sent us a pre-approved card with a $500 limit. Yippie! We soon found out that no matter how early we sent our payment in, we always got a late fee. Every. Single. Month. After writing letters and causing a fuss, we cancelled the card. Imagine our suprise when, so many years later, reader Tim sends us a Business Week article explaining how and why Capital One uses various tactics to increase fees. In this case, it’s over limit fees, but the whole deal sounds very similiar to the problems we had with Capital One back in ’99.

“Cap One… is simply aiming to maximize fee income from debtors who may be less sophisticated and who may not have many options because of their credit history. By offering several cards with low limits, instead of one with a larger limit, the odds are increased that cardholders will exceed their limits, garnering over-limit fees. Juggling several cards also increases the chance consumers may be late on a payment, incurring an additional fee. And if cardholders fall behind, they pile up over-limit and late fees on several cards instead of just one. “How many more ways can I fool you?” says Elizabeth Warren, a Harvard Law School professor who has written extensively on the card industry. “That is all this is about.””

Take a look at the article, pay your balance off in full every month and think twice about using Capital One.— MEGHANN MARCO

Capital One’s Credit Trap [Business Week]

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  1. Falconfire says:

    had the same problem with Capitol One when I turned 18, it nearly destroyed my credit to boot because not only did I get late fees that where bogus, once I canceled (in writing) after paying of my card they charged me ANOTHER LATE FEE. Soon the interest on the late fee reached thousands of dollars (of a 14.95 late fee mind you) that I refused to pay.

    Finally I went apeshit on both capitol one and the collection agency who was calling my house threatening a lawsuit. I flat out told them that if they called one more time to bring on the lawsuit, so I could present 3 letters and a complete history of the card to the judge and have him both prove me right and give me a basis to sue their asses for harrasment and anything else my lawyer feels I would win. I also at this time did what I should have done from Day 1, got the BBB involved.

    Needless to say a month later everything was cleared up.

  2. Sounds like Providian, now part of WaMu, all over again. I would say think twice about using a credit card at all. We should refuse to do business with these companies until they start behaving like responsible, reputable business.

  3. alicetheowl says:

    Ah, so this is a business strategy? Sounds like all the more reason for my husband to transfer his accounts elsewhere and close these out ASAP. He’d already been planning on it, but nothing like an additional incentive.

    We have a combined total of 3 cards, with a combined limit of $1300. He recently called to ask for a raise in limit, since that’s how all of our other cards have worked in the past. But they have this arbitrary system where they’ll randomly up your limit, usually if you haven’t used the card in a while. They won’t do it if you ask.

    (As a business strategy, upping the limit on a card people don’t use encourages them to start using it. I get that, but I still think it’s weird.)

    Since he got his “personal” card (we each have separate cards we use for Christmas purchases and such, and a shared one for emergencies), his income has increased by $6000 per year. He’s never made a late payment on the card, he’s paid off his car loan, and he’s been a responsible credit-holder. But they refuse to increase his limit for the holidays, and won’t tell him why not.

    So, he’s opening an account with the bank he works for and transferring his balance.

  4. Meg Marco says:

    Yikes. Let us know how tranferring from Capital One goes. I think it’s best to stay away from them, particularly if you have options.

  5. CaptainRoin says:

    I have an uncle that had a Capital One card, went over limit accidentally, called to have it increased and they told him they couldn’t increase it because he went over the limit. That doesn’t make any sense at all. I’ve had good luck with MBNA (now BoA), even having them automatically up my limit when I went over.

  6. alicetheowl says:

    *nods*

    That knowledge would’ve helped us years ago, before we opened the accounts. But, better late than never.

    We’ll keep you posted. Meanwhile, would you like him to forward the e-mail that got a canned “customer service will contact you in 24 hours” response? (It’s been 4 business days since he sent the e-mail, 3 since he got that response.)

  7. miss_smartypants says:

    Here’s my dirty Capital One experience:

    Pre Law-school (oh back in the day!) but post-graduating from NYU, Capital One sent me an unsolicited offer for a 0%-for-6-month intro APR card. Having heard of but never personally experienced the wonders of interest free shopping, I was happy to accept.

    Weeks went by, and lo and behold my shiny new card appeared in the mail. Conspiculously absent was ANY indication whatsoever of the interest rate associated with the card. Being a good consumerist from WAY BACK (thanks, Dad!), prior to activation I called Capital One to inquire why they had, perhaps inadvertently, omitted the federally-mandated interest rate disclosures with my card.

    After much CSR-wrangling on my part, finally an answer: the card granted to me was not in fact 0%, but rather 19.99%. (*Pause for shock*). On inquiry, this was because students or recent college gradutates did not qualify for the 0% interest deal. Notwithstanding the fact that they had knowingly contacted me, sending me a big white envelope with “0%” printed in 50-pt font, they had no intention of ever providing me with that offer. To add insult to injury, despite the fact that they arguably comitted fraud by deliberately issuing me a card at an interest rate other than the one they offered and I accepted without making federally mandated disclosures, and that I never activated the card, they then gave me a helluva hard time to “close” the (never-activated) account.

    (Let me point out, that had they sent me my card with a disclosure that the interest rate was other than that they initially offered based on further review of additional financial history, I would have been severely annoyed but not technically defrauded.)

    Needless to say, I would not touch Capital One with someone else’s now that I am a big bucks lawyer. I’ve gotten those 0% deals, all through other issuers, and Capital One is never, ever going to see so much as a ha’penny of my business.

  8. Sam Glover says:

    Let’s see, $35 is 11.6% of $200, making the effective interest rate on your card over 140% yearly if a consumer stays over limit (more likely since the overlimit fee charge counts as part of the credit). And if you are late, too? There’s another $35. You do the math. Overlimit and late fees are clearly more profitable than straight interest. Why settle for a 20% interest income when you can get 300% from a naive, first-time credit card user?

  9. Huh. So I have three cards with them. Two of them are paid off, but still open. I am annoyed that on one of those, there’s a ‘member’s fee’.

    I checked their site and there’s no mention of a ‘member’s fee’. Is it an annual fee? Or something else, enyone know?

    I am thinking of closing out after I get the third one paid.

  10. thrillhouse says:

    Meghann, dear, do you really think this business practice is limited to CapOne? Come now.

    This is what you are dealing with when you enter the credit industry. Sure, some are better, some are worse. But they are all a part of the same shady industry that works tirelessly to find new and exciting ways to scam consumers and retailers out of more money.

    What’s beautiful is that no-one is forced to play this game. You can opt-out at any time.

  11. Chaoticfluffy says:

    Alice: I’ve reached the (oh-so-surprising) conclusion that credit card companies are on crack, collectively speaking. I’m a single student who lives off a small assistantship and the munificence of my parents. Have never had a real, salaried, reliable-income job. Own no home or anything that could resemble collateral.

    Somehow, my limit on my credit card is up to $4500. Which just…wtf?

    And yet the one time I called a couple years ago, back when my limit was $2000, to request an increase so I could buy my laptop, they were like “HahahahaNO.”

  12. Triteon says:

    Thrillhouse– I sent in the article, and what struck me is not that Cap One was the focus of the story but that they are the only ones being sued by a state AG. Also, Business Week did point out that “Chase and Citigroup say they do not offer multiple cards to subprime customers.”
    And yes– opt-out; one card, decent limit, pay it off, use responsibly (and not like this!)

  13. Meg Marco says:

    thrillhouse (dear)– Certainly not.

  14. drsmith says:

    Interesting. Don’t know what I do differently than all of you, but my experience with all of my credit card providers(including BoA and CapOne) has been excellent. No late fees, regular limit increases (that I eventually had to call and ask to have stopped because no one in their right mind would want to have $10K on a credit card!), and they even let me pick my due date.

    Don’t know how long it will last like that, but you gotta wonder what the differences between you and I are that may have led to this…

  15. Celeste says:

    This is just typical. Credit card companies can be downright sneaky about crap like this, and they count on their customers to not pay enough attention to notice it.

    I had an account with CapitalOne. My payment was due on the 15th. I sent it in over a week before the due date, and the check cleared my account on the 12th. My CapitalOne statement, however, did not credit my account with the payment until the 16th, at which time they tacked on their stupid late fee.

    I called them up and complained. At first they tried to say I didn’t pay them on time, but when I told them I’d checked my account and knew for a fact that my check had cleared a full 4 days before they credited it, they suddenly got apologetic and removed the fee.

    Less than two months later, they took the check I’d written for 50 dollars as my payment and encoded it for the entire remaining balance on my credit card, which my bank processed, which promptly overdrew my checking account. A full day lost from work, and much hassle, in order for my bank to get a physical copy of the check, verify it was encoded for the wrong amount, and work with CapitalOne to fix it. Needless to say, I will never be a CapitalOne customer again (and I made them cover all of the overdraft charges they caused me).

  16. miss_smartypants says:

    For the record:

    “and they even let me pick my due date.”

    I’ve never had any provider, any credit card company, even my cable company and electric company, refuse this (even prior to the big lawyer days). It makes absolute sense to line up, say, 50% of your monthly bills due out of one paycheck and the balance out of the second check or whatever is most convenient. I think, Drsmith, without casting (snobby?) aspersions on the “differences” between yourself and other people, everyone needs to be aware that almost any company should grant this request for any consumer (unless you are delinquent at the time).

  17. thrillhouse says:

    Triteon – Congrats on submitting the article.

    Chase and Citi, like all other CC companies, offer them to dead people and dogs. But never multiples to subprime debtors. Never. Ever. Subprime is their biggest target right now.

    And, no, you missed the point. Opt-out, shred all of them and stop borrowing money especially from scum like credit card companies. Responsibility with money has nothing to do with credit cards.

  18. alicetheowl says:

    Celeste, MBNA pulls that one all the time on us. We call them and gripe about the date our bank said it cleared, they reverse the charges, and then they bump up the due date the following month. We have to keep SUCH a close eye on them . . .

    I’ve reached the (oh-so-surprising) conclusion that credit card companies are on crack, collectively speaking.

    I think I agree with that assessment. It would explain a lot.

  19. segfault, registered cat offender says:

    My first “student” credit card was a $500-limit Capital One card, and I never had any late fees tacked on (this was in 2000). I have since moved on to a rewards card.

    On the opposite end, Capital One’s CD and savings account rates are extremely competitive, and their customer service has always been helpful.

  20. Triteon says:

    Correcting myself: CapOne isn’t being sued, they are being investigated (based on recent history, a suit would have come from NY anyway, not WV.) And Thrill– you are absolutely correct on not having even a single card. But are you saying Chase and Citi are marketing to subprime debtors? I was just quoting the article, not that I necessarily believe them.

  21. Mr. Gunn says:

    Here’s how to get away from Crapital One, should that be your only source of credit: Go to cardoffers.com or bankrate.com, select the top 6-7 0% cards covering a range of issuers, Citi, Chase, Discover, MBNA, etc, and apply for them all, simultaneously. Literally open each application page in a separate tab, fill them all out, then go through the windows pressing submit on all of them. My credit score didn’t fluctuate more than 5-6 points, and citi only did one credit pull for all the applications. I now have a credit limit that’s many times what it was, and my FICO has gone up. Once you have enough credit that the crapital one card represents less than 25% of your total available credit, cancel with vigor and glee.

  22. Mr. Gunn says:

    Citi are definitely not marketing to people with subprime credit, that much I can tell you.

  23. pdxguy says:

    I’m a former CapOne card holder. Had a card with them for about 2 years. Never late or overlimit, yet denied credit limit ($1,500) increases 3 times – no good reason ever given. Not late or overlimit with any creditor and a FICO score in the mid-to-high 700′s. Other cards gave increases or new cards with limits 5000+. The final straw was that somehow I overpaid them by 86 cents giving me a credit balance. I didn’t charge anything more and the balance just sat there. Then in July they put a “credit adjustment” transaction in for 86 cents which put my balance to zero. I caught that and told them to reverse it since a credit balance means it’s my money and they owe me. They reversed and I admonished them to not do it again or I would cancel. Comes September and guess what – they did it again. I called and told them I was cancelling my account. When they asked why I told them and they didn’t even apologize. Good riddance CapOne (or should I say CrapOne)!

  24. Myron says:

    I pay my balance every month but every couple of years I make a late payment because I’m out of town for a week or whatever. Now that i’m using automatic bill pay with BoA (no horror stories yet) I set it up to make a $50 payment every month just after the credit card billing cycle closes. That covers the minimum payment and I pay the rest later when i get the bill. This way I will never get hit with a late fee again, with no additional effort on my part.

  25. thrillhouse says:

    Triteon – You better beleive they are. College kids and bankruptcy filers are top targets.
    check out this link

    Also be sure to check out these clips

  26. caveman says:

    I am currently being sued by Capital One. And it’s not just one lawsuit that is keeping me awake at night – but four lawsuits.

    My problems began, as so many do, when my happy little world was struck down by illness. I was self-employed, had a sterling credit rating, savings and investments. My savings and investments were gone in less than a year and I was beginning to experience first-hand what it feels like to receive utility disconnection notices. To have my blood pressure medication run out and not have the money to have the prescription refilled. Trust me, if you don’t have the cash, the pharmacy will not refill your prescription. And when you go to bed at night without taking your medication, you don’t have restful, pleasant dreams – you sleep fitfully, if at all, and have nightmares of having a stroke or heart attack.

    Still, I figured the tough times couldn’t last forever and that things would turn around if only I could hang on another day, another week.
    One day a preapproved application showed up in the mail from Capital One. It was called a “Platinum” card, even though it only had a $500 credit limit. A wise person will tell you when you’re in a hole – stop digging. I should have thrown the application away. But when you’re facing the prospect of having your water, natural gas or electricity shut off, $500 looks pretty good, especially if you have nowhere else to turn. I accepted the card and bought myself some time. I was confident my ship would come in, that I’d be able to keep the new credit card current, and things would be okay. Financial security would return to me and life would be good again.

    A few weeks later another preapproved application showed up in the mail. And then another. And another. Before long I had four Capital One credit cards, each with a $500 credit limit.

    I kept the cards current for awhile but, when things didn’t turn around as I had anticipated, I defaulted on my payments. Now, if I had one card with a $2000 credit limit, my late fee would have been $35 per month. But I didn’t have one card with a $2000 credit limit. I had four Capital One cards, each with a $500 credit limit. Instead of a $35 late fee each month, I was charged $140 in late fees each month, plus 25 percent interest. That is the Capital One “credit trap” that Robert Berner describes in his Business Week article.

    I began receiving phone calls from Capital One. And then collection agencies. Still the eternal optimist, I continued to cling to the notion that the cosmos would smile on me, my problems would go away and the money would start pouring in, just like it used to. But it didn’t.

    And then the lawsuits began. The first lawsuit took place in April of 2006. The second in June 2006. The third in September 2006 and the fourth in November 2006. In each case, I am being sued for about $1300 ($500 plus $800 in late fees, interest, attorney fees and court costs).

    The first two law firms that filed suit against me for Capital One agreed to take $100 monthly payments. Thus far, I have paid $600 to one firm and $700 to the second. My payments are on time. I have answered the third lawsuit but no hearing has been scheduled as yet. I have not yet prepared my answer to the fourth lawsuit. I was hoping to get the first two accounts paid off before being sued for the second two.

    Unfortunately that did not happen and I believe only a miracle will save me from a judgment, or two, and a judgment lien being placed on my house.

    Meanwhile, I am in uncharted territory. I lost my health insurance last summer. And, frankly, I have no idea what to do in the event of a medical emergency. I haven’t seen my own physician in two years. The last time I saw him he chastised me for not having the echo-cardiogram he ordered. I have had yard sales in order to buy lunch and to be able to pay for my prescriptions (Inderal and blood pressure medication). One time I drove to the pharmacy and bought one blood pressure pill because that was all the money I had. The pharmacist was not amused.

    I am having a hard time walking due to severe pain in my legs, hips and back. Go to the doctor? Doctors don’t treat people who have lost their insurance and hospitals don’t provide free x-rays and MRIs. Again, this is uncharted territory for me and I don’t know what to do. I take life one day at a time and continue to hope and pray things will turn around, that I can once again lead a normal life.

    Go get a job? I would love to get up in the morning and put in an 8-hour day. It’s physically impossible at the moment. I can write. I can edit. I can create websites for people. Unfortunately, customers are few and far between. I spend all my waking hours looking for ways to use the assets at my disposal to once again become a productive, normal member of society.

    I wish you prosperity, health and happiness.
    webmaster@caponetrap.com

  27. eli_b says:

    This literally happened to me as a young college student. They gave me a card with a 200 dollar limit. Right on. I went and bought two school books totaling 150 dollars, and then the next month they sent me a statement with my 150 dollar charge, and their 100 dollars worth of ‘card initiation’ fees, and also my over limit charge of 75 dollars. So, they literally gave me a card with 100 dollar limit. Cripes.