Credit Card Rates Continue to Spike
May 14, 2008
There has been, and currently still is, a lot of confusion on the part of consumers who have credit cards. The basis of the confusion is in the interest rates that are being charged or changed. Many times consumers have no idea why their rate is being increased. Here is some news on that front that may help consumers.
Although the Federal Reserve has cut interest rates significantly over the last few months, financial institutions have sharply increased rates for credit card customers. This applies to even those who pay on time. The increases are often seen as ways for institutions to recover losses from other bad consumer loans.
This month, Washington Mutual announced to some of its credit card customers that it was raising their rates by as much as 100 percent. Discover credit card is lifting its penalty rate to 31 percent, effective May 1, and may apply that maximum to consumers who exceed their credit limit twice within a single year. Bank of America raised its rates for some customers in March. It some cases, the rate increase was triple what it was previously.
All three institutions agree that they reserve the right to adjust rates when customers become higher risks. At issue, however, are the indicators that identify risk.
As banks deal with tough business conditions, their definition of risk is evolving: “It’s a lot like beauty; it’s in the eye of the beholder,” says Greg McBride, senior financial analyst at Bankrate.com.
These arbitrary increases in rates are one reason Congress is looking into the policies and practices of some credit card issuers.