Watch Your Credit Card Rates
May 16, 2008
Most consumers probably knew it was coming now it is here. In order to help improve profits, some banks have recently imposed higher fees on consumers for paying late, transferring credit card balances and withdrawing money from an ATM. This can all lead to a higher credit card interest rate and further lead to more defaults on those loans.
The math is simple. If credit card holders who are already hurting and struggling to pay their bills face higher charges and fees, it will be even harder to make those on-time payments. Steep rate or fee increases could nudge them toward default. Credit card delinquencies have been climbing, and overall consumer loan delinquencies are at their highest since 1992.
“If every card company raises your rate, you might have to write the debt off or go into bankruptcy,” says Dan Blanton, of Pevely, Mo. He was notified this month that his Washington Mutual credit card rate would nearly double to 24 percent.
Blanton calls the rate increase “totally unfair” and some in Congress are leaning toward agreeing with him and others who are being charged higher rates. According to Blanton, he pays his credit card bills on time and generally pays more than the minimum due. His credit score is nearly 700, and yet he is being charged more.
To avoid some consumer confusion, Discover’s new penalty rate applies to all new customers. About 10 percent of existing customers could also be hit with the 31 percent rate if they miss a payment or exceed their credit limit twice in one year.
Bank of America and Washington Mutual declined to say what percentage of their existing customer base would be hit with higher interest rates.