banktime.com

The shocks are rippling through every strata of the credit hierarchy in the United States. Have a credit card? You’ve undoubtedly had the terms of your card agreement changed. Increased interest rates, slashed credit lines, all kinds of new fees and an overall decline in the availability of credit are all part of the new order when it comes to plastic in America. Congress slammed down on unfair and deceptive credit card practices with a host of strict new laws that were passed in May and scheduled to take effect in February. The card industry immediately fired back with a salvo of punitive measures against consumers: new annual fees, double-digit interest rates for even customers with the best credit, and arbitrary closing of credit lines that consumers have had open and in good standing for years.

Last week, Citibank sent a shocking letter to many of its best customers informing them that their credit limit would heretofore be raised to thirty percent. Some customers impacted by this change have held cards with APR of just six or seven percent, owing to their excellent credit history and good standing with the bank. But in this day and age, loyalty and good credit habits are no longer enough to keep us from incurring credit card interest rates formerly associated with those in default. These companies have realized that, with the government cracking down soon, they need to jack up rates to a point where they need not be concerned about the laws that will keep them from making arbitrary credit increases set to take effect in February. So they’ll squeeze as many customers as possible to bolster profits as much as possible in the meantime. Customers in between a rock and a hard place with an increased credit card rate have two completely unpalatable options: suck up the increased rate, or opt out. Opting out of a credit card rate means that customers retain their old rate for the life of the balance, but the account is closed. This usually reflects poorly on a customer’s credit history, especially if the account in question is one that they have had open for a long time.

Banks claim that there is more than just profits at stake when they raise rates. Financial institutions have been claiming that raising rates is a necessity. The structure of credit card accounts means that there is no collateral or security for these loans. In a poor economy, banks claim that they have no choice but to give themselves some sort of safeguard against customer defaults. The unemployment rate and skyrocketing default credit default rate have increased risks tremendously for banks, and raising rates are the easiest way to manage those risks. But no matter what the banks’ excuses are, consumer advocacy groups are irate.

The Pew Charitable Trusts group, one of the most avid consumer protection agencies in the country, has declared that harmful credit card practices are still “endemic” in the United States. Consumers still hold over seven hundred eighty billion dollars in credit card debt from the twelve largest issuers in the U.S. alone, with the median interest rate being charged having gone up two percentage points since last year and sitting at eighteen percent. Nine of these issuers have, all by themselves, instituted no less than sixty new charges against their customers. Most of these are higher transaction fees, costlier balance transfers, and upped interest rates. (Pew also noted that credit cards issued by credit unions are almost unilaterally exempt from the same abusive policies as those issued by traditional banks.)

It’s predicted that the trend of credit cards preying upon consumers will continue into the early months of next year, until the new laws take effect or lawmakers bump up the effective date.