Consumers Are Learning The Hard Way: There's No Such Thing As A Fixed Rate Credit Card
For years personal finance experts have been telling consumers to watch out — that there was "no such thing" as a "fixed rate" credit card — the bank can raise your interest rate whenever it wants as long as it gives you a little notice. You don't have to miss a payment. You don't have to do anything "wrong." Now some consumers are learning the hard way.
Take reader Kevin for example. The interest rate on his Bank of America credit card just doubled.
My interest rate doubled from 7.99% to 16.49% and my minimum payment increased from 1.5% to 2.5%. When I asked a rather rude customer service representative about this, she didn't have an answer for why they're doing this. I have never missed a single payment of any type in my life and I have good credit.
According to CNN, Bank of America received $15 billion in bailout money and they're turning around and sticking it to struggling consumers such as myself. I don't mind the higher minimum payment, but the interest rate increase is wrong and unfair. I hope you can help make this public so people know what's going on.
Sure thing, Kevin.
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Comments:
What I'm amazed at is that banks haven't done this sooner. Maybe they just wait until you have a big enough balance so that they can milk it for as much as possible?
Wait, who thought there was such a thing as a fixed rate credit card? I've never even heard of that.
It's unsecured debt. You'd do the same thing as BoA if you'd lent out billions of dollars without collateral.
The reason for the timing is probably the increased rate of default and late payments on credit cards, equaling increased risk for the banks. They jack interest rates to mitigate that risk.
It probably also helps that no one is quick to give out credit nowadays, so BoA knows you won't leave them for HSBC, breaking their hearts and leaving them to fret away on your doorstep with a boom-box and some tears.
@nicemarmot617: The promo rates often say "for the life of the balance" on them. Like many others, I took that at face value (assuming I could "opt out" if anything drastic changed). Chase proved that idea wrong.
In my case, I felt it was better to finance some basic home repairs and improvements on a CC instead of on my HELOC.
Oh yeah, @nicemarmot617, @nataku83, @mavrick67: Ditto.
I thought there were such a thing as fixed rate cards. These companies advertised rate cards. If the other party is holding up to their end of their agreement, paying all debts on a timely basis, then how does this not constitute false advertising?
Just a heads up. We have a Barclays Bank Mastercard and received the statement yesterday. All interest rates we're at the default rate of 27.99%. When I called I was assured that there had been a glitch and that it would be resolved within the next four days.
Am I the only one effected by said "glitch"? I doubt it. Read your statements folks.
@mavrick67:
No one seems to understand the simplest solution. If you pay your cards off in full each month, doubling interest rates don't apply
Crazy stuff... but another tool to use to take your business elsewhere if the bank is being stupid about it.
@rainmkr: I think most banks are going to be increasing rates - not just BoA. As it was mentioned previously, so long as you pay down the balances at the end of the month there is no reason to fret.
Well, the terms say they can be altered. So you enter into an agreement that can be altered and are surprised when it is? Well... duh.
As was mentioned earlier, no balance = no interest rate concerns.
I still have a card with a 4.99% interest rate on it. They have to this date not increased the rate because it would be pointless to do so. I have no purchased anything with it in about 2 years. I am quite certain that the moment I use it the alarms will trigger in the database and I will be bumped into a new category. Well, the good news is I can always cancel that card at the 4.99%. So it's there in case of an emergency should I need to eat a finance charge.
Otherwise balance paid, in full, each month and I have no cares what interest rate they feel comfortable with.
I find it bizarre that the interest rate on my card keeps going down. I'm not complaining, it's just weird.
You can see the giant cloud of smug forming.
"the interest rate increase is wrong and unfair"
They're letting you have their money, completely unsecured, with no strings attached -- and they can do whatever they want and set any terms they want. If you think it's unfair, walk away and don't take their money.
Capital One did it to me. I immediately called and asked for it to be dropped -- long-time customer, always paid on time, nowhere near my credit limit. They refused to lower the APR, so I immediately transferred all of it to a lower rate card.
So much for Capital One being one of the leaders.
@ScottRose: i think the timing also has to do with the pending legislation that won't allow a company to adjust rates on existing balances.
but yeah, i'm sure that other stuff applies too.
Easy soultion, live within your means and don't carry a balance.
I hate to hear folks are getting jacked around. I am so glad I cut up all my personal and business cards three years ago. Screw the usurious slime-ball credit card companies and banks. You'll never get another dime out of me. 100% cash only baby is the way to go.
@LTS!: "I have no purchased anything with it in about 2 years."
Then you should expect it to be canceled at any time.
American Express actually lowered my rate from 8.99% to 7.99% out of the blue the other day. On the other hand, Citi upped my rate from 8.99% to 14.99%, which seems kind of ridiculous. I don't carry any balances on credit cards, but it still annoys me.
Well, good for you, please enjoy paying extra for all your purchases and having no recourse the event a vendor screws you over.
Saying "credit cards are evil" is just as silly as saying "airbags are evil" because people put small children in the front seats of cars.
Can't someone start a class-action lawsuit against the banks for crap like this?
@laserjobs: I keep 3-6 months of savings, but when a surprise house repair occurs, it's often safer (and cheaper) to dip into a 4% or 5% line of credit to make the repairs. At least for me, we're not talking about living outside of one's means. My "means" include keeping a good credit rating and making use of it on the rare occasion that it makes sense to do so. Intelligent use of debt is an important financial tool.
Otherwise, I run a few thousand dollars through Discover card every month, paid in full every month since 1997. Best customer service in the financial industry.
My Citibank card unexpectedly changed my interest to 29.99%. When I called customer service, she couldn't find any reason (no late payments, etc), but would have to "get back to me."
When she called back a half hour later, she said her supervisor said it was "due to my credit rating", that there was nothing they could do about it, but I could pay the balance in full & close the account if I wasn't happy with it.
Immediately fearing identity theft, I ran a credit report and...nothing! My credit score was 2 points shy of excellent.
All this to say that I legitimately ran up a large balance, made every attempt to pay it off according to their "rules", called every few months & got the lowest interest rate possible,etc. It's amazing what these banks can do, "just because," and if you're not in a position to pay it off completely or transfer the balance, you just have to live with it.
@Trencher93: Yeah, that's how they feel about loaning YOU money, but when the government loans THEM money, the attitude is "How dare you try and tell us what to do with it".
@LTS!: Don't be surprised if your first charge after all this time is declined and raises the alarms. Banks treat long-dormant accounts very carefully these days.
To all those citizens during the last decade that bought stuff --you know, the latest and greatest tech gizmos and such--and put all the balance on a credit card that you couldn't payoff when the monthly bill comes due, well, how do you feel now? Was it all worth it? Learn to save, invest and collect interest and dividends. Don't pay interest and fees.
I've got that beat. After reading this article I checked my account. My rate just went from 9.90% to 24.99%. Was a PNC card, then bought my MBNA, most recently bought by Bank of America.
@eurodriver: The fact that you can dodge bullets doesn't make it OK for people to try and shoot you.
@eurodriver:
Not exactly true, Most interest rates are based on a daily rate. Look at your credit card statement and you'll see the "Daily Periodic Rate" at something like .0356% which add up to your 12.99 APR (Annual periodic rate). Even if you pay it off each month you'll have to pay that little needling fee.
@mavrick67:
Thank you, oh wise geniuses of the obvious.
Some people made this realization too late, or had an emergency and were forced to take on the debt. This screwing the people that actually pay their bills is just going to make things worse.
Even USAA is doing this. I have a prime+0 card that I've just been informed is going to be changed to "prime+0-but-can-never-go-below-7%". Bastards.
People carry balances, that doesn't make them wrong. There will also be an extenuating circumstance or other issue that will cause someone to pay for something they can't afford at the time.
They can raise your rate if you miss a payment on another card.
@laserjobs: That's what I did until I was unemployed for 6 months. I managed to stay afloat and not need to declare banruptcy. I now have a stable job and a high credit card debt that I am paying off. I'm making it just fine, but if my interest rate and minimum payments were to suddenly double, my expenses would then exceed my income.
So tell me, how do I take advantage of your easy solution?
yesterday i called to cancel my citibank card, as they raised the rate to 21.99%. once i closed it (i still have a balance on it) it dropped back to 7%!
my fiance just did a debt management plan, for all you other ppl with high interest rates - they freeze your credit cards (cant use um) but drop all the APR's to like 3- 5%.
My finance was paying $1400/mo, now its $450/mo, estimated to pay off in 48 months. it would've taken him 30 years before. (PS, i do recommend [www.credit-rights.org], they were really nice, a rare thing in today's customer service world).
BTW. debt sucks. i really really dislike it, and wish to unsubscribe from their newsletter.
@Tremblor: If you pay your credit card off in full every month, before the due date, there are no fees and no interest. It sounded like you were saying otherwise.
That's the whole notion behind the grace period.
"no balance = no interest rate concerns"
While technically true, I got burned by not noticing the new annual fee of $200.00
CANCEL YOUR CARDS NOW!
@Tremblor: Not sure what you're getting at here. If I have carried a balance, it's true that even if I pay it off in the new cycle, the daily rate means that I'll still have to pay interest once it's paid off; however, at least with my cards, if I've never carried a balance (or once the cycles are free of the carried balance) there's no additional fee. What card are you seeing that's adding a fee even when you never carry a balance?
@Tremblor: I've paid my card off every month and never pay a fee. The interest is calculated on a Daily Periodic basis but only after the grace period.
Credit Cards = Payday lenders of the middle class
@Tremblor: All the cards I've had (maybe 10-15 cards over about 12 years now) charge no interest if the card is paid off in full every month. They have language along the lines of "regardless of the stated rate, if you pay your balance in full each month you will not be charged interest". Are there cards that aren't like that?
BofA also jacked my rate - for no reason. I can keep the old rate as long as I make no new purchases. I'm steamed but don't take it personally - it's just a broad brush attempt by BofA and other banks to reduce their exposure and discourage customers from taking on more debt. My take on this is that the banks expect things to get worse and believe that many current 'good' customers will lose their jobs & ability to pay in 2009.
@Ash78: Does this mean that you're getting more than 4%-5% on your savings money? Where? Inquiring minds, etc.
@nataku83: Nope. The difference is that prior to the recent events everyone was bending over backwards to issue the maximum number of cards possible. If your rate got raised you could just transfer the balance elsewhere. Now your lucky if you can transfer at a low rate, and if you can often times it simply isn't really worth it (after the fees, short lived promotional rate, etc.).
A different competitive environment makes for very different way of doing business.
Another reason not to carry a balance on a credit card.