Credit Card APR Magically Raises From 7.99% To 21.99%

J writes:

I get a letter in the mail yesterday from FIA Card Services about an “Amendment to your Credit Card Account.” I read it and it says that effective the first day following your statement closing date in March 2008 –
* My corresponding APR for “new and existing” category A balances (balance transfers) will increase to 21.99%
* My corresponding APR for “new and existing” category B balances (ATM cash advances, bank cash advances, new check cash advances, direct deposits, and cash equivalents) will increase to 24.99%
* My corresponding APR for “new and existing” category C balances (purchases) will increase to 21.99%
* My corresponding APR for “new and existing” category D balances (as of 4/19/2008 will be balance transfers, cash advances or purchases “as appropriate”) will increase to 21.99%
I keep reading and it says that I can “reject this amendment” by doing so in writing by 2/29/2008.

So, I called them last night to find out if my card/balance was affected by this as we have some promotional rates and a fixed rate of 7.99%. Guess what? It was!!!!

I asked the girl I was speaking with why I got this letter and she said that they indicate I have had a “high balance (which I can agree with)” for “quite some time” and they want to see it get reduced. How can I or someone “reduce the balance” when you jack up my/the APR thus increasing the monthly minimum payment and interest charges? I thought they “loved” consumers like me who carry a balance who seem to never pay it off (although I’m trying to)??? In addition, I CANNOT use the card whatsoever! If I do, then the “rate jack” (even with my letter of rejection), will take effect. I destroyed the card last night.

I’ve never been late with a payment and have tried to pay a little over the minimum each month.

I documented the call and conversation and made a copy of the letter I drafted and sent in case something happens.

I think this all came about from me calling them one night to see what they could do for me on a lower interest rate, payments, etc due to my wife’s medical condition, loss of most of her income etc. They wouldn’t budge and in fact, suggested that I contact a debt consolidation company that “they work with.” They even gave me their toll-free number! Next thing I know, I get a couple of notices in the mail (1 from FIA and 1 from Bank of America who is owned by FIA I think) stating that our credit limits have been reduced! Until this letter last night…

That’s a new one – we’re raising your APR as a way to encourage you to pay off your debt more. Could this be a new strategy? Are banks trying to raise their cash reserves by using a big fee stick to encourage people to pay off their credit card debt? Very strange, the credit card company should love J, people who only make the minimum payments can end up paying several times the loan’s value over the term. Maybe they figure he’s just a really big sucker who will never pay down more than the minimum, so why not ratchet up the pressure and squeeze him for even more dollars. It may be a blessing in disguise, if you have out of control credit card debt, the first step should be to stop using your credit cards, so by enraging you into cutting the card up, they may have done you a favor!

Remember, the minimum monthly payment suggested by the credit card company should not be your guide to paying off your credit card debt. It’s the minimum payment required to stretch out your loan nearly indefinitely. These two charts show the dramatic difference between what happens when you pay only the minimum monthly and when you start making serious dents in your debt.

creditcardmonthlypayment.jpg

Source: OnMyOwnTwoFeet

payments.jpg

Source: AllFinancialMatters

So get off that duff and start making those extra payments! As for everyone else, J’s story is a good reminder about when you get those credit card interest rate raise notices, or any other notice of a changing credit card policy. If you don’t agree with it, you usually have a minimum amount of time to dispute the change to contract in writing. And if you use your credit card at all after receiving the notice, it constitutes you agreement to the terms of the new contract. So if you get such a notice you disagree with, feed the card to Shredder McShredsky.

(Photo: Getty)