Credit cards are so much worse than you thought, according to the 2008 Consumer Action credit card survey. Creditors have carte blanche to do pretty much whatever they want, including randomly changing terms, conditions, and rates, even to cardholders with perfect payment histories and pristine credit scores.
From the survey:
- 77% of surveyed credit card issuers (17 of 22) answered “Yes” to the question “Can you increase my APR or change my terms ‘any time for any reason’?” This includes all Top Ten issuers – even Citibank which pledges not to change a customer’s terms before the card’s expiration date.
- Bank of America, Chase, Citi, American Express and Capital One all reserve the right to change rates without notifying consumer in advance.
- Representatives for Bank of America, Capital One and Citi cited “market conditions,” “the economy,” and ”business strategies” as factors that might cause an interest rate to increase.
Consumer Action also identified several practices that will seem all too familiar to many of us:
- As consumers pay off large balances, creditors slash credit limits so that the balance is always close to the credit limit.
- Credit limits are reduced to levels lower than the current balance, triggering over limit fees and requiring a large “balloon” payment of the over-due amount. This practice also puts the consumer at risk of being hit with a penalty interest rate.
- Cards are declined at the point of purchase, and only then do cardholders find out that their limits have been reduced with no warning.
When asked to comment on their practices, several creditors responded: “Brahahaha!”
2008 Credit Card Survey [Consumer Action]
(Photo: Getty)
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My chase interest rate is 5.99 Fixed and another one is 7.99 Fixed. They gave me a total of 30,000 limit. I’ve setup so that if I ever forget to pay, they will automatically withdraw the minimum payment amount from my account. It’s pretty nice actually because I have not missed a payment.
@linus: I don’t know that they’re really making it easy for people to do the “wrong” thing financially (i.e. take on a debt and abandon it).
I know we all read about the whole aid package for people with bad mortgages, but until we see some numbers of how many people benefited etc… I’m not convinced that a lot of aid type packages for consumers aren’t just a lot of hot air for out benefit during an election year.
For a while now, my impression has been that they’ll maximize profits at the expense of security because it’s worth it for them to lend 100 people some small-ish sum with a relatively high interest rate even if 10 of them default. They’re doing their math and we’re all paying for it.
@sabrinad: Bank of America’s slashed my limit on the same card twice once I started to send in large payments to clear off my balance.
I already avowed never to use the card again for any new purchases, so it doesn’t affect me, but it is a slap in the face for dinging my credit score for being “responsible” with credit.
@Ken: I had the same setup for my CapOne card. I knew the minimum so I set up auto-payment. Every month, the minimum went down a bit, so I was payinf *that* much more than the minimum. Then CapOne jacked my minimum and hit me with a late payment fee. !!!
Don’t rely on your auto payment, people! Read your statement every month just to be safe.
I’m willing to bet that there is a little computer program in their accounting dept that looks for this particular payment pattern just to whack you.
A wise man once told me credit cards are the payday lender of the middle class. How true.
As has been pointed out repeatedly, Bank of Satan can jack you around no matter how careful you are or how scrupulously you pay off your balance. Yes, being careful HELPS. But it is no guarantee.
@forgottenpassword:
If you have any savings whatsoever you shouldn’t be carrying a balance. It makes zero sense to have $5000 sitting in a savings account at (lets be generous) 2.9% while your Capital One card has a $3000 balance at (again, being generous) 8.9%.
If you’re carrying a balance then your card is your emergency savings.
@aaron8301:
No. Not worth it. We don’t use credit cards and none of this stuff ever even enters into the realm of possibility. They don’t even have the opportunity to F with us, and that’s pretty darn cool.
I wish I had my shit together like all of you do. Maybe if I wasn’t fucking poor…
I think credit cards are merely a tool. Like a hammer, or a gun, or a crowbar. It’s up to you to use them responsibly. I pay off my balance in full every month and have gotten nothing but rewards from my credit cards. Am I perhaps ‘buying more’ than I would without it? Maybe… but I’m sure as heck not paying them anything extra for the privilege. I have items in my google calendar for a few days after the statement closes on the two cards that I use and I go online, review the transactions, and schedule a payment and forget about it. In fact, I have a 5% cash back gas/groceries card from Citibank. They last year dropped the rewards to 2%. I called them up to cancel it and they gave the 3% back to me for a year.
Responsible credit use means that you win, but you have to be aware of what’s going on.
I’m surprised that there are so many people that think paying off their balance before the next billing cycle is the wisest use of credit. In fact, if you pay off your full balance before the billing cycle ends, it doesn’t show up on your credit report so you aren’t getting the advantages of being responsible in relation to your FICO score (yet one of many evil tricks of the CC industry — you MUST carry balance to have the activity register).
I alwasy pay my full balance MINUS $50 before the end of the billing cycle so that the purchase and payment actually count on my credit score.
Unfortunately I have to pay the interest on $50 to get the benefits of being responsible, which is a minor but annoying fact.
By definition consumers should be ambivalent at best about credit cards. Anyone actually stupid enough to defend this system doesn’t seem to fully comprehend the long-term damage to America and its economy that this loose credit system has done.
@olegna:
I am not sure from where you are getting your information but paying off your CC balance every month in full is the best way of using a CC. You do NOT need to carry a balance for the activity on the credit card to be reflected on your credit history. The idea you you should carry a balance is wrong, very wrong. Markers for calculating your FICO score include debt to income ration, amount of available credit, amount of time credit is held, type of credit. Carrying a balance does nothing but hurt the consumer by having them pay interest. I hope you begin paying off your credit card balance and stop believing you need to carry a balance.
Its unfortunate but true, CC companies can change the terms including APR or credit limits an any time for any reason, even though if don’t make any real sense (at least not to the consumer). However, by law, a CC company must notify the consumer of any change. The lowered credit limit is probably a closer reflection of the economic times rather then the behavior of the consumer forced to pay for it. Banks are running low on available cash to lend or becoming too scared to lend. The bailout package designed to give money to banks to alleviate this problem unfortunately contained no provisions to actually force the banks to use for any of it for lending and so many have decided to hoard it in order to tighten up their balance sheets.
There is little a consumer can do other than being careful of reading every statement and to catch any changes and being very vocal with the CC company to try to get terms changed.
I hate to say it, but in many ways this situation is a result of the spending behavior the nation has exhibited over the last several decades. We have been living on borrowed money for a long time and we are now too over extended and something has to be done. I’m not saying these aggressive tactics taken by the CC companies are the answer, but in some ways their hand has been forced by the public who have all been to willing to purchase on credit for many years.