Canceling Cards, Raising Interest Rates, Actually Part Of Same Horrible Party

It’s no coincidence that the credit-card interest rate raising and credit card canceling orgies are happening at the same time, reports the New Yorker:

That’s why credit-card companies have had to rein in their lending and shed accounts. Since that risks shrinking profits, they’re also trying to get as much as they can out of their existing customers, by doing things like sharply increasing their interest rates.

Wait till Rick Santelli hears about this one!

I don’t agree with this part though:

Many cardholders don’t have enough money to pay off their balance in full, so when interest rates rise they aren’t able to just close their account and get a different card. Many cardholders don’t have enough money to pay off their balance in full, so when interest rates rise they aren’t able to just close their account and get a different card. Effectively, they’re captive customers.

Hasn’t the New Yorker ever heard of balance transfers, where you get a card with a different company and transfer the balance over? Obviously that’s a lot harder with companies holding back on new lines of credit, but not everyone who can’t pay off their balance in full is “captive” to a new higher interest rate.

Also, as commenter wickedpixel points out, you can refuse the terms of the new higher interest rate. While this means your card is canceled and you lose access to the credit line, you’re not “captive” to the rate either.

House of Cards [New Yorker] (Thanks to Eyebrows McGee!) (Photo: northernplateguy)

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  1. wickedpixel says:

    also, if you choose not to accept the higher interest rate, can’t you close the card and pay off your balance at the old interest rate? that would negate the need to pay off the balance in full as well.

    • oneliketadow says:

      @wickedpixel: Citi said I can keep using my card at the original rate (about 7%) until it expires in May 2010. I’ve mentioned this to the Consumerist staff several times since they keep advocating closing the account, but maybe I’m the only lucky one. All I did was call and say “I don’t accept the change in terms.”

      • formatc says:

        @oneliketadow: I got the same offer from Capital One when they said they’d be raising my rates. I said no thank you by paying off the balance with the tax return I got a week later, which I was planning anyway.

    • kurmbox says:

      @wickedpixel: When BOA said they were raising my interest rate, they also said I could refuse the rate change. I called and asked about this and they said that if I refused the rate change, that I could keep my account open, but not charge anything new to the card and just pay down the balance. This was quite acceptable to me. Also, if I do make any new charges, the rate will automatically change to the higher rate. They also said once I had my balance fully paid off, to call them back and renegotiate a lower interest rate again. YMMV.

  2. Allen Harkleroad says:

    Yes in theory that is correct, forcing the credit card to honor such a thing is a horse of a different color.

  3. Pinget says:

    This is all well and good, but how are you supposed to travel without a credit card? How do you make reservations, for example?

    • Joshua Willis says:

      @Pinget: With this magical device called a debit card.

      • hypnotik_jello says:
        • Pinget says:

          @hypnotik_jello: Exactly. There is no way I would use my debit card for this purpose. Other suggestions? Do they really want to kill the tourism industry?

        • Anonymous says:

          @hypnotik_jello: I have two debit cards (actually about five but for purposes of this conversation we’ll stick to the two that are with the same bank). One is to the account that has direct deposit and that I use for all my bill-paying and spending stuff, and the other is a “holding account.” I keep a couple of bucks in there so that the bank doesn’t fuss about me having an inactive account, and I use that debit account for any online or hope-this-doesn’t-screw-up type purchases. I transfer as much money as is needed from Main Account into Auxiliary Account, then make my purchase, and if (as has happened twice) something goes wrong, I’m not slammed with 75 repetitious charges – because there’s only enough funds to cover for one; all the rest get denied. My mortgage and bill and grocery money are safe in a separate account.

          It is, of course, very important to NOT have overdraft protection on Auxiliary Account. I keep about $150 in Aux Acct and use it as overdraft protection for Main Acct, but have made sure that there’s no overdraft coverage on Aux Acct itself.

          Most people who have credit cards have more than one; I don’t understand why it’s so unheard of for someone to have more than one debit card.

    • shepd says:

      @Pinget:

      Prepaid credit cards. Even people who went bankrupt yesterday can get one since the relative risk is zero, and the interest rate is usually zero (for the consumer).

  4. reidnez says:

    I found out recently that B of A had lowered my limit from $10,000 to $7,000 and inexplicably doubled my interest rate at the same time. What’s funny is that I’ve had this card for five years and they periodically raised my limit from the original $5,000 to a high of $10,000, even though I never carried more than $3,000 on the card and never requested an increase. Now they inexplicably lower the limit (I’ve never been late), which I didn’t really care about since I never approached it in the first place. But doubling the interest rate on a good customer? I called and assertively, but politely asked that my interest rate be lowered, since I had not done anything to justify its increase. They refused, so I cut up the card and plan to pay it off in three months and then cancel it.

    I could have simply stopped using it, but the principle of it angered me. I’m a responsible customer being treated the same as someone who habitually misses payments and carries huge balances. I already have a good credit history and I make enough to do without cards, so I’m getting rid of them.

    What bothers me is that almost all consumers have to establish credit so that they can make larger purchases (car, house) later in life. But the only credit generally available to someone without a credit history is…a credit card. When they start treating responsible consumers the same as people who habitually bury themselves, there’s no reward for making responsible decisions and using credit judiciously.

    • rainbowsandkittens says:

      @reidnez: Actually, you only get rewarded when you use your credit abusively.

    • Verucalise (Est.February2008) says:

      @reidnez: Not according to DAVE RAMSEY!! mu hahahahahaaaaaaa

    • jc364 says:

      @reidnez: Credit cards are unfortunately a necessary evil. The best thing someone can do to build credit (and stick it to credit card companies) is to pay off the card each month. Unfortunately, that’s not always a possibility, as unexpected expenses do come up.

      Regulations are coming to help control what credit card companies can do; however, until then, consumers that carry a balance really don’t have a whole lot of options. You can always balance transfer to another card I suppose.

      I think that realizing that credit card companies are evil is the first step in the right direction. More people should realize that credit card companies are not really on their side.

  5. u1itn0w2day says:

    One of the tactics I don’t quite get is the raise in interest rates . If person hasn’t paid off their balance at a lower rate what the heck do these companies think will happen when their rates increase . Some credit card companies are doubling rates for things like being a few days late on ONE payment . And those same people have had outstanding credit and have history of paying on time or never beyond 30 days late .

    The same thing is going to happen with credit cards that happend with ARMs except in the case of credit cards it will be a rate increase . On top of penalty fees at that . That is simply gouging the customer .

    And just like the mortgages/borrowers many of these credit card customers are going to start walking away from their balance/debt . Instead of an adjusted planned increase it will be a punative APR increase on card holders that will push them to the edge .

    • Anonymous says:

      @u1itn0w2day: Very astute point. People will start to find out about Chapter 7 Bankruptcy laws and wonder – if they’ve already been hit with the ARM problem – what’s to keep you from just completely throwing in the towel? Foreclosure, Bankruptcy… both suck.

      • Pop Socket says:

        @KevinCallisto: Which is why the credit card companies lobbied so hard to tighten bankruptcy laws a few years ago. It is much harder to discard unsecured revolving debt under bankruptcy now.

  6. Blb3303 says:

    Credit card companies must have a listing of credit amounts, or credit aviable not being used. And making this magic number smaller must make them “Feel” more secure.

  7. Ninja007 says:

    Rick Santelli? I don’t get it

  8. cordeduroi says:

    “but not everyone who can’t pay off their balance in full is “captive” to a new higher interest rate”

    Double negative! Gahhh!!!

  9. balthisar says:

    My favorite credit card raised my rates. Even though I only rarely accrue interest, it offended me enough that I opted out. Here’s the thing, though: I can still use the card (Citi AAdvantage) until it expires, at the current terms. It doesn’t expire until some time in 2012. I figure that by then, they won’t be in crisis mode any more, and I’ll be able to get another card with favorable terms.

  10. balthisar says:

    Oh, I meant another card from them again.

  11. 3drage says:

    One problem with balance transfers is the % fee associated. Depending on what the transfer incentive is, it may actually cost the credit card holder more money than staying with higher interest.

    After citi moved my APR up another 2%, I got fed up and found a discover promo for 0% on transfers for 12 months. I paid 1/3 of my card off, and then transferred the balance where I’ll pay it all off in 12 months. Then say to hell with credit card companies, they can take a long walk off a short pier.

  12. Jamie Lancaster says:

    As for the ‘how do I travel without a credit card?’ question. If you have a card that has a balance on it and you’ve had to freeze it because you cannot make the payments at the higher rate, then I suggest that you not travel until you can afford to do so.

  13. TheSpatulaOfLove says:

    @Jamie Lancaster:

    And I suggest you step off your high horse for a moment and look to see that not everyone’s situation is as privileged as yours.

    Capitol One AND my company (which the job I have requires me to travel) have both come together to collectively fuck me. The company eliminated corporate Amex, telling me I have to use my own credit and submit expenses, and Capitol One dropped my limit as well as doubled my interest rate — all within a couple months of each other. Did I carry a balance previous to this? Yes – but why is none of your damned business, and I have been a good little utensil, paying far above the minimum and on time, watching their ever moving dates, etc…But I get punished.

    Use my debit to travel – fat chance.

  14. Anonymous says:

    Chase, which offered me 0% until 2010, just told me that it will raise my rate to 21% .
    Why? Market conditions and “to maintain profitability.”
    The reason why I opened this account was to pay down my debt. I’ve never missed a payment. Always paid early. And at much more than the minimum balance.
    Of course, they don’t make money that way.
    But a deal’s a deal …. They should honor promotions.
    It’s just plain dishonest.

  15. yzerman says:

    I don’t have a problem if they want to raise my rates but they need to leave the balance I have at the current rate and any new purchases go under the new rate.

  16. Marshfield says:

    Well, if the problems we are having in the collapse of the housing market stemmed from easy credit and low rates, and the consumer credit market following this pattern, it would make sense that correcting the problem consists of making credit harder to get and more expensive as well.

    Fewer people have credit, and those that do pay more.

    It’ll be that way until the market adjusts and the credit card companies start seeing their earnings stabilize, losses drop, and then earnings are flat and they have to start giving out more cards, raising limits, etc. to generate activity.

    Just part of the big wheel of credit turning, turning, turning..

    • pecan 3.14159265 says:

      @Marshfield: Maybe I’m the exception here…but I haven’t had my interest rate increase, I haven’t had my limit dropped, and I am able to get more credit (I just got another card to replace an old one).

      *Knock on Wood* this will continue for us responsible people.

  17. bwcbwc says:

    I get the feeling they’re mostly reining in folks whose mortgages have become a substantial percentage of their property value. So far the only credit change I’ve seen is that I haven’t received a new credit offer in several months. Oh, and the transaction fees have gone up on the low-interest rate offers they put in with the bill.

    • failurate says:

      @bwcbwc: They all used to have a $50 to $100 maximum fee. Now they have no maximum fee and they have reduced the terms to 12 or 24 months instead of “until balance is paid”.

  18. frodolives35 says:

    The change in the Bankruptcy laws really make me wonder just how aware the powers that be were about what was coming.

    • Pop Socket says:

      @frodolives35: They saw it coming a mile away and it’s why the put such a long fuse on the Consumer Bill of Rights. They are going to squeeze as much blood out of their turnips as they can.

  19. locura79 says:

    All of these stories surprise me. I’ve had issues with two credit card companies in the recent past, and both were solved reasonably and promptly.

    In one instance, BofA decided to change my payment due date all of a sudden, so my automatic payment was late. I called and explained the situation, and they removed the late fees and returned my payment due date to previous date.

    In another instance, Discover raised (doubled) my minimum monthly payment, so my automatic payment wasn’t enough for the month. Again, I called and the charges were removed without any argument. They also randomly lowered (halved) my minimum payment a few months later.

  20. corinthos says:

    I canceled three of mine today after paying them off with my tax return and a work bonus that I got paid two weeks ago. All of them were Chase cards and I hate chase because I was with them for 8 years and always paid on time and they wouldn’t refund one late fee because I got it like two days before it was due.
    I was expecting to just get the ok and be glad to be rid of me but they kept trying to get me to transfer balances and up my limit. Which I was like umm why I didn’t even use have half the limit you gave me so why would I want more?

  21. failurate says:

    I kind of get the feeling that the credit card companies are intentionally sinking their boat in hopes of getting some more of that sweet sweet government tit.

  22. vincedia says:

    I just love the credit score cycle this puts you in.

    Lower limits increasing your debt to credit ratio.
    This lowers your credit score.
    Lower scores equal reduced credit amounts and/or higher rates.
    More reduced amounts and higher rates equals a lower credit score.

    No way to save yourself from that one if you have to carry a balance. Your only hope is to pay off all the debt but I would be dreaming if I thought everyone could do that.

    To those of you thinking I’ll cancel my card to show the evil mean credit card companies, please remember that if there is no annual fee, you can just leave it open with no balance so you don’t take a hit on the credit score…you know, just in case you need credit in the future.

  23. Joseph Beck says:

    Citibank is unrelenting in their rate increases.

    A few years ago I rolled a balance into a Citibank credit card using a balance transfer that promised a 3.9% rate until the balance is paid off.

    Last month, for the first time ever, I sent the payment too late and they received it THREE DAYS after it was due.

    citibank jacked the interest rate up to 29.99% and added a $39 late fee.

    When I called to protest they quickly removed the $39 late fee “because I had such a good record” with them, but they flat out refused to lower the interest rate. I talked to several people and they all refused. They kept referring to the “default rate” which made me angry because I do not consider three days late to be in default.

    I had the exact discussion with one CSR regarding captive customers who would just end up defaulting on such a huge increase in interest fees. I also asked about canceling the account, he told me that if I canceled with a balance on the account it would be very bad for my credit history.

    Luckily I am not captive, I paid off the balance using my home equity line of credit which is currently at 2.45%. And I will never again do business with Citibank.

  24. Anonymous says:

    DON’T CLOSE A CREDIT CARD! Especially one with a moderate to high credit limit! There is this magic little formula that credit companies use to figure out what is called your “FICO Score”. Your FICO score determines more in your life than you ever realize until/unless your score goes down. When you close a card, your ratio of available credit decreases – especially if you have ANY balances on ANY other cards or lines of credit – You then have a higher ratio of used credit to available credit. This can make the FICO score plummit to the level of someone with bankruptcy and forclosures before you realize there is even such a thing as a FICO score. Suddenly you can’t rent that apartment you wanted, suddenly you are no longer eligible for that job you were a shoo-in for, suddenly you can’t even refinance your own house that has 50% equity already – all due to a lower FICO score.
    Certainly when a card company shafts you with a higher interest rate, stop being a nice customer – pay it off, transfer it to a better rate card, etc – but don’t actually close the card. Let it sit there helping your FICO score simply by being there. If your card has a yearly fee, if it is a tiny fee it is worth just paying it, if it is a huge fee then look carefully at how much open credit you’d be losing by cancelling the card. For your FICO score, you want to try to keep your used credit ratio at or below 25-30% of your available credit.

  25. theblackdog says:

    I guess I got lucky in that I paid one of my credit cards off this past month. Ironically the other card I am working to pay off a balance transfer just sent me an offer for a 0% rate on new balance transfers. Luckily I don’t need it :-)

  26. Phil Keeps It Real [Consumerist] says:

    This is partially why I claimed bankruptcy & the banks won’t budge if you try to explain your reasoning.

    I figure if I can’t live off cash..why bother, for now.

    I’m not saying this is what you should do, or consider doing. & Yes, I’m aware of the slew of con’s associated with this procedure. Hey if the banks can cash out & cash in..why can’t I ?

    Now let the bashing begin…

  27. econobiker says:

    As ElsaNycteus said on 7:39 PM on Mon Mar 16 2009 @hypnotik_jello: I have two debit cards (actually about five but for purposes of this…”

    I concur with ElsaNycteus about having multiple debit cards. We have four active bank checking accounts and one semi-dormant credit union account. Debit cards for them all so a total of 10 cards between my wife and I. Basically one active bill/deposit account, one for savings, one for certain payments in regards to a legal issue, and one for connection to a health savings account to churn healthcare payments and refunds by our HSA. This also allows us to turn over an account quickly if one is compromised or use a different account if the card # is compromised such as what happened with the Heartland Processing breach.

    All that about debit cards said, I still reserve rental cars/hotels with our almost maxed out credit card and then pay upon return/checkout with a debit card.

    As for credit cards, BOA socked it to me (my fault missed a payment) to 27.99% so we shifted the amounts over to another card plus got a Discover which has a 0% that is done next month. We are fiercely paying down the accounts now and only use cash for everything.

  28. econobiker says:

    vincedia said at 12:36 AM
    “To those of you thinking I’ll cancel my card to show the evil mean credit card companies, please remember that if there is no annual fee, you can just leave it open with no balance so you don’t take a hit on the credit score…you know, just in case you need credit in the future. “

    Some card companies are closing cards or reducing the available credit to near nothing if you do not use it regulary…

  29. tz says:

    There is one problem with the “balance transfer”. Just go back and look what Chase did (added $10/mo, changed to 5% minimum monthly payment or 8% interest), or CapitalOne (randomly upping interest rate to 29%).

    Right now I have two of the balance transfer offers and I’m waiting for one or both to do what was described just yesterday – cutting the credit limit BELOW the current balance.

    One of my current transfers was moved from Chase who did the $10/mo thing to me. It was to another with a “until the balance is paid off” promise.

    I can’t quite pay everything off today if I needed to but am working toward it. Most people only have $2k in the bank, but I have enough for almost a year if I did nothing and I don’t want to deplete that just to pay down a card. Think cash-flow, not balance. If the cards turn evil I will, or I have one card from my credit union (credit unions are wonderful!) which I will increase the balance on (so I can build up the cash reserve and/or pay down the other cards first), and the credit union has a consumer loan at a reasonable interest rate which I could probably pay off everything else at once with.

  30. affilsarah says:

    About “captive” customers – at AFFIL we’ve been hearing from plenty of people who just can’t pay off their balances when their rates go up. Probably most people can afford to do that, but plenty can’t. They’re the ones getting most screwed by these rate increases. True, people can stop using their cards to keep the interest at the original low rate, but what happens in an emergency? With our negative savings rate, there are a lot of people out there with no financial cushion except the “plastic safety net.”

  31. ohiomensch says:

    Sure they do, and by manipulating people’s debt to limit ratio, thus making their credit score drop by artificial means, they can then justify the increase in interest rate.

    They hold all the strings and are master manipulators of the beloved FICO that we have to pay money to see, even tho it rules every move we make creditwise.

  32. MaytagRepairman says:

    I wanted to do a balance transfer to pay off my Wamu card but couldn’t do it online. There was no option on the web site to pay off the card with another card. Did I have to call the company in person? It is a moot point now — my with-holding was screwed up this year and a big tax refund took care of the problem.

  33. u1itn0w2day says:

    ohiomensch -exactly .

    The credit card credit score companies/agencies are doing the opposite of what the bond/debt ratings did for the mortgage bundled securities .
    Both had incentive to MANIPULATE for financial gain .

    The credit score companies have incentive to lower your personal credit rating for financial gain but the mortgage industry and bond/debt raters had incentive to raise the ratings theoretically on many of the same individuals . How ironic .

  34. Mr.Kvetch says:

    I just got my love note from BofA today and got a 10.75% increase.

    I went from fixed 9.99% to 20.74% starting May.

    All this despite holding a zero balance on the card and this week being my 9 year anniversary.

    “It’s nothing you did, it’s just the current economy”. Bull5hi1t.

    Glad to know my tax dollars are going to bail out a healthy bank that cares about its long time customers. It looks like that credit card will be frozen in a block of ice while I transfer our family’s $10K plus in liquid assets from BofA to a local credit union.

  35. Anonymous says:

    Question…In 2003 Sears denied renewal of my credit card and closed my account because of a negative mark they noticed on my credit report. After clearing the negative mark mistakenly reported by my mortgage company, Sears still wouldn’t renew it, and I was to pay it off.
    Suddenly this month, April 2009, I notice my interest rate doubled! Looking closer, I noticed that I suddenly have a Total Credit Line amount, and a Cash Access Line amount (in the thousands) whereas when it was closed, it read 0.00 across the page on any kind of credit line. Looking back on previous bills, they have been going up and down on my interest rate for years!
    What the hell is going on? Can they suddenly start raising interest rates on an account they closed?