From the recent Congressional hearings about credit card rates I read:
Levin's scrutiny of the industry has had an impact. JPMorgan Chase (Charts, Fortune 500) recently announced that the company would eliminate so-called double-cycle billing - which eliminates the interest-free period of consumers who move from paying the full balance monthly to carrying a balance. Additionally, it will no longer raise rates based on credit scores.
The day I see that I will stop posting on this site... I actually called chase to inquire about my 29.99 rate and I was told that they have no such directive. I guess they WILL do it in the future but not now as they have to suck up the sub prime debacle..
Tuesday, December 4, 2007
Congress to examine credit card rate hikes
Finally someone is looking at the predatory tactics of credit cards companies, Chase and the rest with their ingenious "default" schemes that allows them to charge rates of 29.99% at a drop of a hat...
Note also that Obama picked on it. I guess that there are so many people getting screwed that politicians smell votes... Here is the Obama article
Note also that Obama picked on it. I guess that there are so many people getting screwed that politicians smell votes... Here is the Obama article
Thursday, November 1, 2007
Default APR: Up to 31.74% variable. That much about rates going down...
I was reading the terms on the new Chase FREEDOM card and I am reading:
17.74% variable.a
Other APRs
Balance Transfer APR: 17.74% variable.
Cash Advance APR: 23.74% variable
Default APR: Up to 31.74% variable.
It is unbelievable that one can end up paying 31.74% in interest. If I would do that I would end up in jail for loan-sharking...
17.74% variable.a
Other APRs
Balance Transfer APR: 17.74% variable.
Cash Advance APR: 23.74% variable
Default APR: Up to 31.74% variable.
It is unbelievable that one can end up paying 31.74% in interest. If I would do that I would end up in jail for loan-sharking...
Credit card over the limit fees
Apparently law makers are looking into credit card fees. Amen!! But one can only guess that it will take years before anything happens and meantime Chase and the likes will be on a fee rampage.
Check out the relevant article here
Check out the relevant article here
Thursday, October 11, 2007
Debit Cards - a new ripoff scheme?
As one must have noticed in the US Visa TV Commercials, debit cards are hailed as the ultimate convenience for small purchases at food stands, convenience markets, and other places where charges are below 10 USD. That is great but apparently on the receiving end, the banks treat these as check transactions which means that they will apply overdraft fees if for any reason you exceed your balance. At the same time they will honor any amount without regard to the available balance (something about convenience while travelling and a lot of our excuses to rip you off), only to add a $34 overdraft fee when it hits your account. Actuall it is very easy to be overdrawn since most banks will treat the credit card approval as a potential charge locking the corresponding amount regardless if the charge comes in or not. If that amount is around your entire balance, consequently checks that arrive after this "approval" will be treated as overdrafts and charge an overdraft fee around $34 for most banks. The overdraft fee is independent of the amount of the overdrawn item so it is very likely that you may end up paying an extra $34 for a sandwich purchase of $5 !!!
Apparently there is a lot of that going on. Check out the reports at the Rip-off report site This is a Wells Fargo queue but representative of many other banks.
Is it me or did the old decline methods are gone. If there is no money in the account why they do not decline the transaction so that they alert you of the problem instead of pilling on fees? We know that banks are businesses that want to make money, not wellfare institutions but their fee structures are dubious.
Apparently there is a lot of that going on. Check out the reports at the Rip-off report site This is a Wells Fargo queue but representative of many other banks.
Is it me or did the old decline methods are gone. If there is no money in the account why they do not decline the transaction so that they alert you of the problem instead of pilling on fees? We know that banks are businesses that want to make money, not wellfare institutions but their fee structures are dubious.
Saturday, October 6, 2007
How to file a consumer complaint against your credit card company
After some searching around I discovered that the Office of the Comptroller of the Currency is apparently the government agency that regulates national banks and consequently any complaints against a bank should start here... They do offer many ways to submit a complaint and a ton of information at:
http://www.occ.treas.gov/customer.htm
http://www.occ.treas.gov/customer.htm
Monday, September 17, 2007
Bank of America is getting into the "Default" game
Bank of America has been mailing new "amendments" which allow them to increase the default rate to "32.24%". In that same amendment they are restructuring the rates for Cash Advances to be significantly higher than those for purchases placing then on the average at 24.4%. Customers have until January 18, 2008 to reject the amendment in writing. I just sent mine in so I do not know yet of the shortfalls but then why would I agree to a 32.24% rate?
The credit card game is getting nusty as most of the US is drowning in consumer debt and credit cards are becoming "balls and chains". The news are talking about subprime loans and nobody is paying attention to the credit card games. Those with serious balance should brace themselves...
The credit card game is getting nusty as most of the US is drowning in consumer debt and credit cards are becoming "balls and chains". The news are talking about subprime loans and nobody is paying attention to the credit card games. Those with serious balance should brace themselves...
Thursday, September 6, 2007
Students be ware
Second in the favorite customer list of credit card companies are students. For the cost of a five cent coffee mug or some other cheap chinese promotional gimmick, students are invited to sign up for credit card offers right on campus. Then work the rest of their lives to pay off their balances... These cards offer also special perks like a double-cycle billing, where interest is calculated over two months instead of the typical one, resulting in higher finance charges!!!
Guess the bank behind the "special offers" just for students...my favorite: Chase Bank
Read more...
Also don't miss the confessions of a credit card pusher
Guess the bank behind the "special offers" just for students...my favorite: Chase Bank
Read more...
Also don't miss the confessions of a credit card pusher
Wednesday, September 5, 2007
Newly Bankrupt Raking In Piles of Credit Offers
It is amazing that in a "civilized" country banks are allowed to do this... This was also a point made in the movie "Maxed Out". The banks are piling credit card offers on people that just declared bankruptcy... Why? Simply because they cannot file again and would have to work for the rest of their lives to pay the 29.99% interest rates that the banks impose on them
Simply beautiful. You got to love this system. It makes you wonder: banks can rob people but people go to jail for robbing banks???
"The people coming out of bankruptcy need an opportunity to get back on their feet," said Laura Fisher, a spokeswoman for the American Bankers Association.
Click here for the full article (or the article title)
Simply beautiful. You got to love this system. It makes you wonder: banks can rob people but people go to jail for robbing banks???
"The people coming out of bankruptcy need an opportunity to get back on their feet," said Laura Fisher, a spokeswoman for the American Bankers Association.
Click here for the full article (or the article title)
Picking the right credit card (or better not picking a card)
I am reading this and summarizing everything in one sentence: Get only credit union cards. Apparently all the big ones are ripping off people. Note that this article highlights the "triggers" to fees and higher rates which I mentioned in my other posts. Firts you get a 0% transfer everything to me offer, then they decide that you have too much credit, then apply the "default" interest of 29.99%...
Yet people still deal with these sharks and are expected to feel guilty about their usage of the card. I will not forget how "little" I felt at times when dealing with my Chase card and their fine 29.99% rate. They pretty much want you to feel like a loser and that they did you a favor for offering you credit at that rate...
Yet people still deal with these sharks and are expected to feel guilty about their usage of the card. I will not forget how "little" I felt at times when dealing with my Chase card and their fine 29.99% rate. They pretty much want you to feel like a loser and that they did you a favor for offering you credit at that rate...
Sunday, September 2, 2007
Fees and then some more fees from Citibank
Chase is not alone in the fees and raising rates schemes. Apparently Citibank plays similar games with their clients even when they payoff their balance. Read and enjoy...
Friday, August 31, 2007
The Best and Worst Credit Cards by CNNMoney
Suprise, surprise... " Consumers who used the MasterCard and Visa bank cards through JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC, complained that they were assessed unfair late fees or experienced unexpected interest-rate increases. "
Twenty-eight percent of cardholders surveyed who pay the highest interest rates (interest of more than 25 percent) reported that their rate increase was due to a universal default clause. Cards that employ a universal default allow issuers to increase rates if a consumer makes late payments on other accounts, such as car loans, mortgages, or other credit cards
My question is where are the regulators or does anyone really care?
Twenty-eight percent of cardholders surveyed who pay the highest interest rates (interest of more than 25 percent) reported that their rate increase was due to a universal default clause. Cards that employ a universal default allow issuers to increase rates if a consumer makes late payments on other accounts, such as car loans, mortgages, or other credit cards
My question is where are the regulators or does anyone really care?
Tuesday, August 28, 2007
Credit card defaults keep rising
Chase bank can take this now... Surprise, surprise, credit card defaults are going up. Bump up those interest rates Chase! What is sad however is that the loan sharks (Chase and the crew) have setup the bankruptcy laws to protect them to the max, not to mention a market in which without a credit card you cannot even rent a movie...
Friday, August 17, 2007
Another great Chase Card trick ...
These guys are good...I meant REALLY GOOD.
A few months back I asked for a review of the interest charged on my account. As usual I got denied getting the typical demeaning "yada yada" as to why a 29.99% interest is because of "several factors" but if I make ontime payments for the next six months then they can take a look at it... One of the factors once mentioned is amount of payment. So next step after setting up automatic payments was to ensure that I pay at least double the minimum. Unfortunately there is not such option, just automatic payment using the minimum. So I decided that adding an extra payment will actually add up to my automatic payment...Not the CHASE way I am afraid. They actually deduct or do not post an automatic payment if you do another extra payment!!!! Call me picky or that I pay too much attention to detail but it is the same details they bring up denying to bring the interest to a fair level.
And the balance transfers checks from CHASE keep coming... These guys are like the Banking Sopranos.
Next common sense question to answer: Why don't you tranfer your balance (or pay it off for that matter). Coming up next...
A few months back I asked for a review of the interest charged on my account. As usual I got denied getting the typical demeaning "yada yada" as to why a 29.99% interest is because of "several factors" but if I make ontime payments for the next six months then they can take a look at it... One of the factors once mentioned is amount of payment. So next step after setting up automatic payments was to ensure that I pay at least double the minimum. Unfortunately there is not such option, just automatic payment using the minimum. So I decided that adding an extra payment will actually add up to my automatic payment...Not the CHASE way I am afraid. They actually deduct or do not post an automatic payment if you do another extra payment!!!! Call me picky or that I pay too much attention to detail but it is the same details they bring up denying to bring the interest to a fair level.
And the balance transfers checks from CHASE keep coming... These guys are like the Banking Sopranos.
Next common sense question to answer: Why don't you tranfer your balance (or pay it off for that matter). Coming up next...
Tuesday, August 14, 2007
Take a bite out of crime!
Want to hit credit card companies where it hurts? Waste some of their advertising money! Next time you see their ads on google, Overture, MSN go ahead and click on each one of them. It does not cost you anything but it costs them money. Yeap Google picks up the money but it certainly feels good when these credit card sharks have to pay a dollar or so a click for each completely irrelevant visitor. This is probably the most effective way to boycott them.
For those that do not understand Google adwords (or Overture/MSN for that matter) the links on the right and the top two "highlighted" links are sponsored. Every time you click on them, the sponsor is charged an amount depending on the position and bid price. The cost ranges from 25 cents up to several dollars depending on the bid value for a particular keyword. The way that multiple clicks from the same user are differentiates is usually via IP address (the address of your computer on the Internet) or a cookie (a file identifying you to Google). Therefore clicking on the same ad 10 times on the same Google visit does not count as ten clicks but rather one. The next day you visit however you get a new start... Also using another computer gives you a fresh start.
Funnily that is the little dirty secret about keyword advertising. How can one protect these paid clicks from coming via competitors or people wanting to exhaust the advertisers budget? Commonly refered as "click fraud" this is a major problem that search engines selling clicks do not seem to be able to combat. Meantime I find this a brilliant way to boycott companies which advertise on the Internet.
Pass the word around and happy clicking!
PS. In case somebody thinks this as a promotion of click fraud please think again. I just mentioned what is common sense.
For those that do not understand Google adwords (or Overture/MSN for that matter) the links on the right and the top two "highlighted" links are sponsored. Every time you click on them, the sponsor is charged an amount depending on the position and bid price. The cost ranges from 25 cents up to several dollars depending on the bid value for a particular keyword. The way that multiple clicks from the same user are differentiates is usually via IP address (the address of your computer on the Internet) or a cookie (a file identifying you to Google). Therefore clicking on the same ad 10 times on the same Google visit does not count as ten clicks but rather one. The next day you visit however you get a new start... Also using another computer gives you a fresh start.
Funnily that is the little dirty secret about keyword advertising. How can one protect these paid clicks from coming via competitors or people wanting to exhaust the advertisers budget? Commonly refered as "click fraud" this is a major problem that search engines selling clicks do not seem to be able to combat. Meantime I find this a brilliant way to boycott companies which advertise on the Internet.
Pass the word around and happy clicking!
PS. In case somebody thinks this as a promotion of click fraud please think again. I just mentioned what is common sense.
Monday, August 13, 2007
Consumer Debt Statistics
Interesting data from the Federal Reserve...
A very interesting point the average credit card rate which is show to be on the average 14.47. If I am guessing correct if Chase has rates at 29.99% then somebody must have 0%!!!! Can anyone explaine this paradox because I cannot?
A very interesting point the average credit card rate which is show to be on the average 14.47. If I am guessing correct if Chase has rates at 29.99% then somebody must have 0%!!!! Can anyone explaine this paradox because I cannot?
Think twice before using that 0% transfer check
After being screwed from Chase for over a year at a rate of 29.99% (remember universal default), today I receive a bunch of checks from them to use my free balance for a balance transfer at 3.9% until it is paid off...Tempting? Well reading through the fine print (learned an expensive lesson by not reading before), I noticed a very vague disclaimer that allows them to raise the 3.9% to any rate in case of default. Note that default does not mean not paying the card on time, or not paying according to terms. Chase defines default as anything in your credit report that can alert them to potential credit problems including high balances, or a late payment at an unrelated account. These guys are good so watch out!
What a clever way to transfer your lower rate balance to them for 3.9% for a few months until they come back and ask you why you used it and why you borrow too much? I will never forget a call I received from Chase asking me why I have used my credit card up to 80% of my available balance. Why would they give you that credit if they are afraid that you are going to use it? Go figure...
What a clever way to transfer your lower rate balance to them for 3.9% for a few months until they come back and ask you why you used it and why you borrow too much? I will never forget a call I received from Chase asking me why I have used my credit card up to 80% of my available balance. Why would they give you that credit if they are afraid that you are going to use it? Go figure...
Monday, July 30, 2007
Watch out before signing up for that Chase great rate!!!
Chase has been going crazy with ads about attractive rates and great rewards. Before signing up do yourself a favor and read the posts on Ripoff alert below:
http://www.ripoffreport.com/searchresults.asp?submit22=Search+All+The+Latest+Rip-Off+Reports+Now%21&q1=ALL&q2=&q3=&q4=&q5=chase+bank&q6=&q7=&searchtype=0
This is another fellow that got caught on the typical Chase/Universal Default tricks commonly known as "bait and switch" schemes.
http://www.ripoffreport.com/searchresults.asp?submit22=Search+All+The+Latest+Rip-Off+Reports+Now%21&q1=ALL&q2=&q3=&q4=&q5=chase+bank&q6=&q7=&searchtype=0
This is another fellow that got caught on the typical Chase/Universal Default tricks commonly known as "bait and switch" schemes.
Wednesday, July 18, 2007
Maxed out... A must see
This is a must see for all consumers. A documentary about how credit card providers pray on consumers...particularly those who have already filled for bankcrupty. See the stories of some everyday people in credit hell...
Credit card surveys, look out...
A lot of credit card surveys attempt to provide a guide to the best credit cards in the market. What they fail however to state is practices and customer satisfaction. I find Chase my personal "favorite" on top of the surveys which fail to mention that today Chase may offer you a rate of 14% but as soon as they decide that you have too much credit bump it up to 29.99%!! Surprisingly Chase tops the surveys which fail to mention the bait and switch approach they take...not to mention the cure TV commercials. Stay away from those crooks.
My personal experience has been that Wells Fargo, Citibank, B of A, and Capital One have not changed their rates when Chase bumped mine to 29.99% (both on my personal and business account under the company name...).
Credit card applicants beware...
My personal experience has been that Wells Fargo, Citibank, B of A, and Capital One have not changed their rates when Chase bumped mine to 29.99% (both on my personal and business account under the company name...).
Credit card applicants beware...
Join the fight against unfair credit card practices!
"Consumer Action, is a national non-profit education and advocacy organization offering many free services to consumers." Here you will find a lot of resources in launching a consumer complaint about your crooked credit card provider (my favorite is Chase)
Visit: http://www.consumer-action.org/
Visit: http://www.consumer-action.org/
A credit card company that does not suck... Citibank
Not all banks are equal and Citibank demonstrates that by ending any universal default practices. According to Marketwatch, Citibank is ending "universal default" on all Citi-branded consumer credit cards, effective immediately (poste 3/1/2007), the company said. Universal default, a common practice among credit-card issuers, is when the company increases a consumers' interest rate when that consumer is late paying other creditors' bills. Also, Citi said it would eliminate its "any time for any reason" rate increases, which allow the company to raise interest rates and change terms at any time and for any reason another common practice among card issuers. Citi said the policy is effective immediately for new customers and will go into effect for current customers by April.
Read the full article on Marketwatch
Read the full article on Marketwatch
Wednesday, July 11, 2007
Universal Default, a license to charge unlimited interest
My search for answers to my question led to the exact reason for a bank's license to charge as much interest as they please. Hidden in almost all credit card agreements (does anybody other than the writers, read these?) is a clause for Universal Default. Simply stated, any negative information landing on your credit report by any creditor can trigger "Universal Default" allowing any other creditor to raise their interest rate on your account. According to US laws there is no limit on the raise.
I have discovered a very interesting article that explains some hidden secrets behind credit card company ripoffs. Here is the link:
http://www.pbs.org/wgbh/pages/frontline/shows/credit/eight/
More happy reading coming soon...
I have discovered a very interesting article that explains some hidden secrets behind credit card company ripoffs. Here is the link:
http://www.pbs.org/wgbh/pages/frontline/shows/credit/eight/
More happy reading coming soon...
Thursday, July 5, 2007
Credit Cards Gone Wild!
It seems that credit card companies have been trying to enter the Indian market without success. Apparently the pure cash market has trouble adjusting to fees and interest sometimes as high as 50%. I guess the Indians see the road ahead and there is big backlash again cards and their issuers. Read this interesting article courtesy of the International Herald Tribune.
Credit cards get a hostile reception in India
By Heather Timmons Published: July 5, 2007
NEW DELHI: Arigit Sengupta, a hotel manager in Bangalore, swears he is never using a credit card again.
After spending 30,000 rupees, or $740, on his card and paying his minimum balance on time, he said he wound up owing his bank more than three times that amount. "The kind of interest they charge, not even a chartered accountant could understand," he said.
Local and foreign banks are aggressively peddling credit card accounts in India, with good reason. Indian back offices service the credit card accounts of the rest of the world, creating the industry's ideal customer base: a fast-growing middle class with disposable income. India, like other emerging markets, is also attractive because consumers in the West are already overloaded with debt.
But winning Indian consumers over to plastic has been more problematic than expected.After years of hard sales, there are fewer than four active credit cards for every hundred Indian adults, one of the lowest rates in the world. And at a time when foreign banks like Barclays continue to jump into the business, an organized backlash against credit cards is building.
They are drawing vocal and heated criticism from users, consumer advocates and the government, who allege unfair fees, nuisance charges and - oddly enough, for the service capital of the world - miserable customer service.
Newspapers regularly run stories telling consumers how to cancel their cards. Many card holders have unashamedly abandoned their accounts after being levied charges they consider unfair.
"These banks are cheating the public," claims C. V. Gidappa, who heads the Credit Card Holders Association of India, a nationwide consumer group. Gidappa's organization, which estimates that Indian consumers are paying 16.4 million rupees a day in unfair charges, is agitating for a "debt-free India" by 2020.
Rates and fees frustrate credit card users around the world, but Indian consumers have something special to complain about: interest rates average more than 30 percent, and can soar to more than 50 percent, while charges tacked on for late payments are sometimes a whopping 20 percent of the overall balance.
The Indian government's trade watchdog, the Monopolies and Restrictive Trade Practices Commission, has begun an inquiry into the card-selling practices of banks including Citigroup, HSBC and the local banks ICICI and HDFC. These banks are "indulging in unfair trade practices" that "have an inherent and inevitable effect of causing irreparable loss and injury to the general public," according to a preliminary report from the watchdog's investigative arm.
The commission has the power to fine companies and limit their business dealings. All the banks involved say they have followed all appropriate trade practices and are complying with the agency's information requests.
The Reserve Bank of India is also concerned. On May 7, the RBI sent a letter to all commercial banks warning about "usurious" interest rates on loans and asking them to make sure costs to borrowers were justifiable. The RBI's ombudsman office said it had received 3,700 complaints from consumers about credit card lenders from January 2006 through May of this year - nearly two complaints for every hundred cards outstanding.
Some frustrated users have simply stopped paying their bills. About 1 in 10 credit card accounts in India are "charged off," banks here estimate, or have fallen so far behind that they are never expected to be paid, compared with about 1 in 25 in the United States, according to Standard & Poor's data.
"My balance never came to an end," said one borrower, V. P. Ullas, a branch manager at a finance company who initially charged some 15,000 rupees in clothes and furniture purchases to his Citigroup credit card. He is refusing to give the bank any more money, he said, after watching his balance climb to 100,000 rupees with fees and charges, and having already paid many times the purchase price. Ullas said he usually paid his bill promptly, but his interest rate jumped to 55 percent from 24 percent a year.
"I have paid much more than what is due to them," he said. Citigroup said it could not comment on individual accounts, but said customers who paid their minimum balance on time would not have an escalating balance.
Ashesh Razdan and his wife Monika, Delhi residents who work in the IT and pharmaceutical industries, respectively, have been battling a charge of 17,000 rupees on their HSBC card since June of last year. They always paid off their bills and their card completely and on time, Razdan said, but after dozens of faxes and calls to the bank disputing the charge, they've let the HSBC account lapse.
"How many times am I supposed to call customer care?" Razdan asked.
Because India lacks a comprehensive central credit reporting agency like the United States has, the repercussions for borrowers who stop paying bills are unclear. Disputes between banks and borrowers are generally settled out of court.
Many card customers - like Sengupta, who is negotiating for a settlement with his bank, ICICI - pledge never to rely on plastic again. "I've learned a lesson," he said.
In addition to high fees, customers say that sales agents make false promises about no-fee cards, payments are not recorded, bills do not show up and problems are not resolved promptly or at all, leading to more fees. Some cardholders who fall behind say they are visited by thuggish collection agents.
Banks lure in customers and then "start squeezing your blood," alleges Gidippa.
CORE, an consumer group with the slogan "Wake up consumer," gets some 50 to 60 credit card complaints a day.
The industry has real problems, CORE executives say. "We see a disconnect somewhere" between what consumers expect and what they're getting from the card companies, said Smita Singh, manager of brand and media at CORE.
"Changes have to come from the banking industry," she said.
Credit card lenders say they need to charge high rates and fees in India because of the market's uncertainties. Besides the lack of a reliable credit bureau to track borrowers' payment histories, India has no unified identification standard like the U.S. social security number. People move and are untraceable, they say.
"Many of these issues arise because of lack of customer awareness," said Citigroup's head of cards in India, T. R Ramachandran. "They are first-time borrowers, they are unfamiliar with carry-forward balances." Customer education, industry-wide, "continues to be a challenge," he admits.
Citigroup, which has 3.3 million accounts in India, said it provided new customers with a "welcome pack" that puts important terms and conditions in plain language. It also provides 24-hour telephone customer service and sends text messages to cellphones days before bills are due. Terms are also spelled out on the back of every bill, the bank says.
Even bankers in India recommend using credit cards solely for short-term borrowing.
"You should not finance any long-term expenditure on your credit card," said Dheeraj Dikshit, head of the card division at HSBC, which is now the fourth-largest credit card company in India, with 2.5 million customers.
Dikshit said that the HSBC policies were transparent, with details available on the Web and at branches. The bank is committed to resolving complaints within seven days, he said.
About a quarter of Indian card accounts are opened through direct sales agents, who are not bank employees but often peddle card accounts in bank lobbies.
MRTPC, the government watchdog, has been investigating card companies' use of direct sales agents for more than a year, following newspaper reports that accused banks of dubious practices.
A Delhi office filled with faded files and bug-infested sofas serves as the headquarters for the inquiry, a stark contrast to the slick offices of most new banks in the country. The investigation team leader also strikes a figure far different from that of India's emerging breed of bankers.
Jai Kumar, director of legal for the monopoly commission's investigative arm, has bulky forearms, two gold rings, a large gold watch and a prominently missing front tooth.
Kumar threatens to summon errant sales agents to court.
"We will call these people to the witness box," he said.
Credit cards get a hostile reception in India
By Heather Timmons Published: July 5, 2007
NEW DELHI: Arigit Sengupta, a hotel manager in Bangalore, swears he is never using a credit card again.
After spending 30,000 rupees, or $740, on his card and paying his minimum balance on time, he said he wound up owing his bank more than three times that amount. "The kind of interest they charge, not even a chartered accountant could understand," he said.
Local and foreign banks are aggressively peddling credit card accounts in India, with good reason. Indian back offices service the credit card accounts of the rest of the world, creating the industry's ideal customer base: a fast-growing middle class with disposable income. India, like other emerging markets, is also attractive because consumers in the West are already overloaded with debt.
But winning Indian consumers over to plastic has been more problematic than expected.After years of hard sales, there are fewer than four active credit cards for every hundred Indian adults, one of the lowest rates in the world. And at a time when foreign banks like Barclays continue to jump into the business, an organized backlash against credit cards is building.
They are drawing vocal and heated criticism from users, consumer advocates and the government, who allege unfair fees, nuisance charges and - oddly enough, for the service capital of the world - miserable customer service.
Newspapers regularly run stories telling consumers how to cancel their cards. Many card holders have unashamedly abandoned their accounts after being levied charges they consider unfair.
"These banks are cheating the public," claims C. V. Gidappa, who heads the Credit Card Holders Association of India, a nationwide consumer group. Gidappa's organization, which estimates that Indian consumers are paying 16.4 million rupees a day in unfair charges, is agitating for a "debt-free India" by 2020.
Rates and fees frustrate credit card users around the world, but Indian consumers have something special to complain about: interest rates average more than 30 percent, and can soar to more than 50 percent, while charges tacked on for late payments are sometimes a whopping 20 percent of the overall balance.
The Indian government's trade watchdog, the Monopolies and Restrictive Trade Practices Commission, has begun an inquiry into the card-selling practices of banks including Citigroup, HSBC and the local banks ICICI and HDFC. These banks are "indulging in unfair trade practices" that "have an inherent and inevitable effect of causing irreparable loss and injury to the general public," according to a preliminary report from the watchdog's investigative arm.
The commission has the power to fine companies and limit their business dealings. All the banks involved say they have followed all appropriate trade practices and are complying with the agency's information requests.
The Reserve Bank of India is also concerned. On May 7, the RBI sent a letter to all commercial banks warning about "usurious" interest rates on loans and asking them to make sure costs to borrowers were justifiable. The RBI's ombudsman office said it had received 3,700 complaints from consumers about credit card lenders from January 2006 through May of this year - nearly two complaints for every hundred cards outstanding.
Some frustrated users have simply stopped paying their bills. About 1 in 10 credit card accounts in India are "charged off," banks here estimate, or have fallen so far behind that they are never expected to be paid, compared with about 1 in 25 in the United States, according to Standard & Poor's data.
"My balance never came to an end," said one borrower, V. P. Ullas, a branch manager at a finance company who initially charged some 15,000 rupees in clothes and furniture purchases to his Citigroup credit card. He is refusing to give the bank any more money, he said, after watching his balance climb to 100,000 rupees with fees and charges, and having already paid many times the purchase price. Ullas said he usually paid his bill promptly, but his interest rate jumped to 55 percent from 24 percent a year.
"I have paid much more than what is due to them," he said. Citigroup said it could not comment on individual accounts, but said customers who paid their minimum balance on time would not have an escalating balance.
Ashesh Razdan and his wife Monika, Delhi residents who work in the IT and pharmaceutical industries, respectively, have been battling a charge of 17,000 rupees on their HSBC card since June of last year. They always paid off their bills and their card completely and on time, Razdan said, but after dozens of faxes and calls to the bank disputing the charge, they've let the HSBC account lapse.
"How many times am I supposed to call customer care?" Razdan asked.
Because India lacks a comprehensive central credit reporting agency like the United States has, the repercussions for borrowers who stop paying bills are unclear. Disputes between banks and borrowers are generally settled out of court.
Many card customers - like Sengupta, who is negotiating for a settlement with his bank, ICICI - pledge never to rely on plastic again. "I've learned a lesson," he said.
In addition to high fees, customers say that sales agents make false promises about no-fee cards, payments are not recorded, bills do not show up and problems are not resolved promptly or at all, leading to more fees. Some cardholders who fall behind say they are visited by thuggish collection agents.
Banks lure in customers and then "start squeezing your blood," alleges Gidippa.
CORE, an consumer group with the slogan "Wake up consumer," gets some 50 to 60 credit card complaints a day.
The industry has real problems, CORE executives say. "We see a disconnect somewhere" between what consumers expect and what they're getting from the card companies, said Smita Singh, manager of brand and media at CORE.
"Changes have to come from the banking industry," she said.
Credit card lenders say they need to charge high rates and fees in India because of the market's uncertainties. Besides the lack of a reliable credit bureau to track borrowers' payment histories, India has no unified identification standard like the U.S. social security number. People move and are untraceable, they say.
"Many of these issues arise because of lack of customer awareness," said Citigroup's head of cards in India, T. R Ramachandran. "They are first-time borrowers, they are unfamiliar with carry-forward balances." Customer education, industry-wide, "continues to be a challenge," he admits.
Citigroup, which has 3.3 million accounts in India, said it provided new customers with a "welcome pack" that puts important terms and conditions in plain language. It also provides 24-hour telephone customer service and sends text messages to cellphones days before bills are due. Terms are also spelled out on the back of every bill, the bank says.
Even bankers in India recommend using credit cards solely for short-term borrowing.
"You should not finance any long-term expenditure on your credit card," said Dheeraj Dikshit, head of the card division at HSBC, which is now the fourth-largest credit card company in India, with 2.5 million customers.
Dikshit said that the HSBC policies were transparent, with details available on the Web and at branches. The bank is committed to resolving complaints within seven days, he said.
About a quarter of Indian card accounts are opened through direct sales agents, who are not bank employees but often peddle card accounts in bank lobbies.
MRTPC, the government watchdog, has been investigating card companies' use of direct sales agents for more than a year, following newspaper reports that accused banks of dubious practices.
A Delhi office filled with faded files and bug-infested sofas serves as the headquarters for the inquiry, a stark contrast to the slick offices of most new banks in the country. The investigation team leader also strikes a figure far different from that of India's emerging breed of bankers.
Jai Kumar, director of legal for the monopoly commission's investigative arm, has bulky forearms, two gold rings, a large gold watch and a prominently missing front tooth.
Kumar threatens to summon errant sales agents to court.
"We will call these people to the witness box," he said.
Monday, July 2, 2007
An old but interesting NY times articles that is relevant...
THE PLASTIC TRAP
Soaring Interest Compounds Credit Card Pain for Millions
By PATRICK McGEEHAN
Published: November 21, 2004
The New York Times
!This article was reported by Patrick McGeehan, Lowell Bergman, Robin Stein and Marlena Telvick and written by Mr. McGeehan.
When Ed Schwebel was whittling down his mound of credit card debt at an interest rate of 9.2 percent, the MBNA Corporation had a happy and profitable customer. But this summer, when MBNA suddenly doubled the rate on his account, Mr. Schwebel joined the growing ranks of irate cardholders stunned by lenders' harsh tactics.
Mr. Schwebel, 58, a semiretired software engineer in Gilbert, Ariz., was not pleased that his minimum monthly payment jumped from $502 in June to $895 in July. But what really made him angry, he said, was the sense that he was being punished despite having held up his end of the bargain with MBNA.
"I paid the bills the minute the envelope hit the desk," said Mr. Schwebel, who had accumulated $69,000 in debt over five years before the rate increase. "All of a sudden in July, they swapped it to 18 percent. No warning. No reason. It was like I was blindsided."
Mr. Schwebel had stumbled into the new era of consumer credit, in which thousands of Americans are paying millions of dollars each month in fees that they did not expect and that strike them as unreasonable. Invoking clauses tucked into the fine print of their contract agreements, lenders are doubling or tripling interest rates with little warning or explanation.
This year, credit card companies are changing the terms of their accounts at a historically high rate, said Michael Heller, an industry consultant.
As those practices spread, they are creating a rift between the lenders and some of their more lucrative customers, according to cardholders, current and former bank consultants and regulators who were interviewed for a joint report by The New York Times and "Frontline," the PBS documentary program.
People like Mr. Schwebel, who carry balances from month to month and pay finance charges regularly, feel they should be the favored customers of the credit card business, which is now the most lucrative segment of banking. They make up the profitable majority of the 144 million Americans who have general-purpose credit cards. To a degree, they subsidize the 40 percent of credit card customers who pay in full each month without incurring any fees or charges.
But increasingly, they say, what should be a warm embrace has turned into a painful squeeze as lenders employ new tactics to extract more and bigger penalties for even the slightest financial transgressions. In the last few years, lenders have more frequently raised customers' rates because of slip-ups elsewhere, like late payment of a phone or utility bill, or simply because they felt a customer had taken on too much debt.
The practice, called universal default, started after a rash of bankruptcy filings in the mid-to-late 1990's and has increasingly become standard in the industry. While MBNA declined to comment on any specific customer's account, its general counsel, Louis J. Freeh, the former F.B.I. director, said in a statement that it was being prudent by raising rates when it had reason to think the risk of not being repaid had increased.
Edward L. Yingling, executive vice president of the American Bankers Association, said bankers must have the flexibility to change terms on short notice. The bankruptcy filings of the 90's - many by customers who had been paying their bills on time - caught banks off-guard, he said.
Lenders decided they needed to watch for signs of trouble elsewhere, like missed car payments, he said. In those cases, he added, there are only two logical responses: "We're not going to let you have this credit card loan anymore and we're going to say, 'Pay it off,' or we can say, 'You're now more risky; we're going to raise your rate.' "
Still, some critics say the severity of the punishment does not match the risk of default. The suddenness and perceived unfairness of the penalties have left many consumers feeling burned by lenders who relentlessly courted them with promises of low rates.
To some cardholders and consumer advocates, credit card companies are acting like modern-day loan sharks, strong-arming their customers to pay more - with no legal limit on how much they can charge.
In eight years, the major card companies have increased the fee charged to cardholders for being even an hour late with a payment to $39, from $10 or less.
Unleashing an Industry
Duncan MacDonald, who, as a lawyer for Citibank was involved in its successful case for deregulation of fees before the United States Supreme Court in 1996, now says he fears that he helped to unleash a monster.
Until that ruling, most banks still charged an annual fee of about $25 for the use of a card and a single fixed rate to all borrowers, usually around 18 percent. Applicants either qualified for the privilege of carrying a card or they did not.
"I certainly didn't imagine that someday we might've ended up creating a Frankenstein," said Mr. MacDonald, who predicted that the penalty fees could rise to $50 in another year. "I look at that and I say to myself, 'Is $50 a fair fee, plus a 25 percent interest rate and all these other fees that are thrown on, for folks who are probably not that risky? Is that fair?' "
Mr. MacDonald said federal bank regulators should investigate the fairness of universal default and some of the banks' harsh penalties. But regulators and lawmakers have been reluctant to crack down on a popular consumer product that fuels America's economic engine. Consumer spending pulled the country through the last economic downturn, powered largely by purchases financed with debt, to the tune of $2 trillion.
Few consumer products today are as cherished or reviled as credit cards. The typical household has eight cards with $7,500 on them. People like Mr. Schwebel are known as "revolvers" in the industry because they roll balances over from month to month, never paying in full.
Without the 85 million Americans who revolve, card issuers would be struggling to please their investors. But with them and the hefty finance charges they accrue from the moment cashiers swipe their cards, the industry is reaping record gains. Last year, card issuers made $2.5 billion a month in profit before taxes.
"I think it is generally understood that those that use the revolving part of the credit card are kind of the sweet spot," said Mr. Yingling of the bankers' association, who spoke on behalf of several of the biggest issuers, including Citigroup, J. P. Morgan Chase and MBNA, all of which declined to make executives available for interviews.
But the lenders' aggressive tactics have prompted a surge in complaints and lawsuits and even a warning from the primary regulator of national banks in September. In an advisory letter, the Office of the Comptroller of the Currency said banks should not raise card rates without having fully and prominently disclosed the circumstances that might cause an increase.
Changing the Terms
The case that opened up the industry came in 1978 when the Supreme Court decided that a bank could charge its cardholders any rate allowed in the bank's home state. Major banks swiftly moved their credit card operations to places like South Dakota and Delaware that had removed caps on interest rates. There is no federal limit on consumer credit rates.
After that ruling on interest rates, credit cards, which until then had generally been an uncertain business, started to look potentially lucrative. Banks began to innovate and compete. They cut the required minimum monthly payment to 2 percent of the balance, from 5 percent, to encourage customers to borrow more and stretch out the repayment. They dropped annual fees and dangled offers of low interest, or none at all, to lure new customers.
At the same time, legal teams crafted contracts of 12 or more single-spaced pages that gave the banks the leeway to change their terms whenever they wanted. A typical term sheet for a Visa card issued by Bank One, which was acquired this year by J. P. Morgan Chase, includes: "We reserve the right to change the terms at any time for any reason."
John Gould has worked in and around the credit card business for 25 years, but he said he was shocked when his wife tried to make a last-minute payment over the phone and was charged an extra $15.
"What a rip," he said. "That does get me mad."
Fees like that are accounting for a greater share of the revenue that card companies garner from their customers. Last year, they collected $11.7 billion in penalty fees, more than half of the total $21.5 billion in fees they collected from cardholders, according to CardWeb, a research firm.
Mr. Gould, a former executive of MasterCard International who conducts research for TowerGroup, a company owned by MasterCard, said he did not think that card companies were trying to trap people into financial distress. But he said it was "absurd" that 44 percent of them tell their customers that they might be penalized for one or two late payments with maximum rates that now exceed 28 percent.
This practice has gone on while the short-term interest rates set by the Federal Reserve Board have been unusually low, now at 2 percent, he noted, but the rates have been rising in recent months.
"What are they going to do if we have a spike in interest rates?" Mr. Gould said. "What are they going to start charging people, 35 percent, 38 percent? If it comes to that, you might as well go to the loan sharks."
But Andrew Kahr, a financial services consultant who devised some widely used consumer-lending strategies, including the zero-percent teaser rates, said consumers should be able to recognize that the business is a "game of chance." Interest rates shooting past 25 percent may seem scandalous to some, Mr. Kahr said, but they are "no less realistic" than the low introductory rates many cardholders receive.
The lenders offer tantalizingly low initial rates because that is what it takes to lure customers from competitors, said Mr. Kahr, who was a founder and chief executive, until 1986, of the San Francisco lending company now known as Providian. After he left, Providian ran afoul of state and federal regulators for some of its credit card practices, and agreed to a $300 million settlement.
But, he said that banks cannot earn an adequate return by lending for less than it costs them to borrow, so they look for ways to recoup losses on the low-rate chasers.
"They do better when they apply these price increases selectively to customers who statistically have become more risky, or to those who have violated the rules of the account," Mr. Kahr said.
Still, some cardholders complain that they did not know the rules until after they were punished for breaking them. Linda Sherry, editorial director for Consumer Action, an advocacy group, said "the consumer really has no rights to find out anything, to demand, 'Why is this being done to me?' "
Last month, a consumer advocacy group in San Diego, the Utility Consumers' Action Network, filed suit against Discover Financial Services, the issuer of the Discover card, asserting that it had changed the rules late in the game. The group contends that a recent rewording of Discover's universal-default policy is unfair to consumers, especially those in difficult financial situations.
The change, disclosed to cardholders in April, allowed Discover to raise the interest rate to 19.99 percent, from as low as zero, for a single late payment. But the infraction did not have to follow the revision, because Discover reserved the right to look back 11 months for a late payment that could justify the increase.
"It has gotten to the point where the fine print is becoming almost outright abusive of their customers," said Michael Shames, executive director for the consumer group. "The customers who are affected most by this practice are those who, for one reason or another, are having trouble making payments and have a large balance."
Jennifer Kang, a spokeswoman for Discover Financial, said she could not comment because of the pending litigation. Discover executives declined repeated requests for an interview.
Mr. Heller of Argus Information & Advisory Services in White Plains, the industry analyst who has studied the rate of change in credit card terms, said that his research showed that in the first half of this year, MBNA - the card issuer that doubled the interest rate for Mr. Schwebel, the Arizona engineer - repriced a smaller share of its card accounts than the industry average.
But MBNA, in the statement from Mr. Freeh, said: "If we see indications that a customer is taking on too much debt, has missed or is late on payments to other creditors, or is otherwise mishandling their personal finances, it is not unreasonable to determine that this behavior is an increased risk. In the interest of all of our customers, we must protect the portfolio by adjusting a customer's rate to compensate for that increased risk."
The Credit Score
The interest rate on a credit card is theoretically correlated to the likelihood that a borrower will make good on his debts. Lenders typically measure those odds by a three-digit number known as a FICO score.
Calculated by and short for the Fair Isaac Corporation, a company in Minneapolis, that score has become the most vital of statistics to many Americans.
Credit scores are used to determine everything from how much a person can borrow to how much he or she pays for life insurance to whether he or she can rent a home. A utility company in Texas even experimented last summer with using credit scores to set prices for electricity.
The number crunchers at Fair Isaac do not make lending decisions. They simply take information collected by the three largest credit-reporting agencies, Experian, Equifax and TransUnion, and apply mathematical formulas to boil it down to a single number on a scale that runs to 850.
"Lenders use that score, almost like a thermometer, to determine if they're going to grant credit or not," said Tom Quinn, a spokesman for Fair Isaac. He estimated that his company had calculated a credit score for about 75 percent of American adults.
The average FICO score is 720, he said. A score below 620 lands a consumer in the riskiest category, known as subprime, and virtually ensures the highest borrowing rates, if the consumer can obtain any credit at all. Credit reports generally note only those payments made at least 30 days late.
Consumers with better-than-average scores are usually, but not always, eligible for the lowest rates. As Steve Strachan, a flower importer in York, Pa., learned, a relatively high credit score does not guarantee favorable terms.
A thick credit report on Mr. Strachan from January showed a FICO score above 730, but by then he had already been through a battle with the issuer of a card that had once been his favorite method of payment.
In the 1990's, Mr. Strachan traveled frequently from his home on the West Coast to Amsterdam and other foreign cities to meet with suppliers of tulips and exotic flower varieties that he distributed to domestic florists and wholesalers. He obtained a WorldPerks Visa card that rewarded him with seat upgrades through Northwest Airline's frequent-flier program.
"I used that card whenever I possibly could because of the travel benefits," he recalled, sitting in his living room before stacks of credit card bills, change-of-terms notices and other correspondence between him and several lenders. "Never paid a penny of interest."
He was such a valued customer then, he said, that US Bank, which issued the card, had extended him a high credit limit of $54,000 even though the card rate was just one percentage point above the prime rate. When the economy wilted after the collapse of the stock market in early 2000, so did Mr. Strachan's business. He began using his credit lines on that Visa card and a few others to stay afloat, paying smaller portions of his growing balances.
Then, in May of last year, US Bank sent Mr. Strachan a letter telling him that it planned to raise the card's rate to 20.21 percent, nearly quadrupling the existing rate of 5.25 percent.
"I wasn't late, and I didn't go over the credit limit, and I didn't write bad checks," Mr. Strachan said. A representative of US Bank told him he was using too much of his available credit, he said.
A US Bank spokesman declined to comment on Mr. Strachan's account.
The monthly interest charge on his $50,000 balance jumped from $209 in June to $756 in July and $808 in August. He eventually persuaded the bank to restore the original rate, but the bank closed the account, shutting off a key source of credit.
By then, Bank One, another creditor, had compounded Mr. Strachan's woes. He was carrying a balance of about $70,000 on one account when the bank started raising his rates, first to 19.99 percent in April 2003, then to 22.99 percent the next month, then to 24.99 percent in June. By October of last year, he was incurring a monthly finance charge of about $1,500 on a $77,000 balance.
"It was like they almost all had a little meeting in the back room and said, 'Let's get Strachan,' " he said of his creditors. "How does it serve them to treat people like that? Are they trying to force them into bankruptcy?"
Lawyers he consulted advised Mr. Strachan to take the easy - and increasingly popular - way out by filing for bankruptcy protection, but he refused. He is struggling to make good on his debts "because I have principles and ethics."
But the battle to dig out of a deepening hole has taken a toll. Mr. Strachan said he had lost 30 pounds and described himself as a "broken man."
Lately, he said, Bank One has periodically reduced his credit limit to a level just above his remaining balance, leaving him little margin for error. Some months, he said, if he were to pay only the minimum due, the ensuing finance charge would put his balance over the limit, triggering a penalty fee.
By doing that, he said, "They create their own little monster."
The Regulators
Consumer complaints prompted the Office of the Comptroller of the Currency, which oversees the nationally chartered banks that constitute most of the major card issuers, to warn banks about giving fair notice of term changes and about sending out tempting offers to people who are unlikely to qualify for them.
Julie Williams, the acting comptroller, said in an interview that as long as the lenders were not intentionally deceiving their customers, they were free to set whatever rates and fees their home states allow. If customers do not want to pay a particular rate, "they have choice," she said. "They can find another card."
But consumers clearly are unhappy with the choices they have. About 80,000 people lodged complaints with the comptroller's office last year. Ms. Williams said the largest single source of their ire was credit cards. Those complaints are routed to examiners who monitor the banks, she said, but the examiners' foremost concern is to make sure the banks are financially sound.
Ms. Williams described her agency as a "tough regulator," but critics contend that the comptroller's office has taken strong action against only one major issuer of credit cards in the last five years. In 2000, the O.C.C. joined in an investigation into Providian that had been started by the San Francisco district attorney's office.
Providian customers complained that they had been hit with late fees for payments that had been sent in on time but not credited to their accounts for days or weeks. Some said the resultant penalties pushed them over their credit limits, leading to additional fees.
Later, Ms. Williams said, the two agencies joined forces to extract $300 million in a settlement with Providian.
The comptroller's office has since angered state attorneys general by trying to limit their ability to regulate how national banks behave in their states.
Eliot Spitzer, the attorney general of New York, said his office gets "thousands of complaints every year about credit card issues relating to the major banks, the major card issuers." But more often, he said, the banks' response has been that " 'we don't need to deal with you because the O.C.C. has told us - indeed, directed us - not to deal with state enforcement entities.' "
Elizabeth Warren, a professor at Harvard Law School who has been a vocal critic of consumer lenders, said the comptroller's office should do more than express discomfort with the practices of credit card companies, as it did in September.
The regulators did not say that "those are unfair practices, they are unsafe and unsound and don't do them," Ms. Warren said. "Instead, they said it's a problem. Look, if they think it's a problem, then tell the credit card companies to stop doing it."
Soaring Interest Compounds Credit Card Pain for Millions
By PATRICK McGEEHAN
Published: November 21, 2004
The New York Times
!This article was reported by Patrick McGeehan, Lowell Bergman, Robin Stein and Marlena Telvick and written by Mr. McGeehan.
When Ed Schwebel was whittling down his mound of credit card debt at an interest rate of 9.2 percent, the MBNA Corporation had a happy and profitable customer. But this summer, when MBNA suddenly doubled the rate on his account, Mr. Schwebel joined the growing ranks of irate cardholders stunned by lenders' harsh tactics.
Mr. Schwebel, 58, a semiretired software engineer in Gilbert, Ariz., was not pleased that his minimum monthly payment jumped from $502 in June to $895 in July. But what really made him angry, he said, was the sense that he was being punished despite having held up his end of the bargain with MBNA.
"I paid the bills the minute the envelope hit the desk," said Mr. Schwebel, who had accumulated $69,000 in debt over five years before the rate increase. "All of a sudden in July, they swapped it to 18 percent. No warning. No reason. It was like I was blindsided."
Mr. Schwebel had stumbled into the new era of consumer credit, in which thousands of Americans are paying millions of dollars each month in fees that they did not expect and that strike them as unreasonable. Invoking clauses tucked into the fine print of their contract agreements, lenders are doubling or tripling interest rates with little warning or explanation.
This year, credit card companies are changing the terms of their accounts at a historically high rate, said Michael Heller, an industry consultant.
As those practices spread, they are creating a rift between the lenders and some of their more lucrative customers, according to cardholders, current and former bank consultants and regulators who were interviewed for a joint report by The New York Times and "Frontline," the PBS documentary program.
People like Mr. Schwebel, who carry balances from month to month and pay finance charges regularly, feel they should be the favored customers of the credit card business, which is now the most lucrative segment of banking. They make up the profitable majority of the 144 million Americans who have general-purpose credit cards. To a degree, they subsidize the 40 percent of credit card customers who pay in full each month without incurring any fees or charges.
But increasingly, they say, what should be a warm embrace has turned into a painful squeeze as lenders employ new tactics to extract more and bigger penalties for even the slightest financial transgressions. In the last few years, lenders have more frequently raised customers' rates because of slip-ups elsewhere, like late payment of a phone or utility bill, or simply because they felt a customer had taken on too much debt.
The practice, called universal default, started after a rash of bankruptcy filings in the mid-to-late 1990's and has increasingly become standard in the industry. While MBNA declined to comment on any specific customer's account, its general counsel, Louis J. Freeh, the former F.B.I. director, said in a statement that it was being prudent by raising rates when it had reason to think the risk of not being repaid had increased.
Edward L. Yingling, executive vice president of the American Bankers Association, said bankers must have the flexibility to change terms on short notice. The bankruptcy filings of the 90's - many by customers who had been paying their bills on time - caught banks off-guard, he said.
Lenders decided they needed to watch for signs of trouble elsewhere, like missed car payments, he said. In those cases, he added, there are only two logical responses: "We're not going to let you have this credit card loan anymore and we're going to say, 'Pay it off,' or we can say, 'You're now more risky; we're going to raise your rate.' "
Still, some critics say the severity of the punishment does not match the risk of default. The suddenness and perceived unfairness of the penalties have left many consumers feeling burned by lenders who relentlessly courted them with promises of low rates.
To some cardholders and consumer advocates, credit card companies are acting like modern-day loan sharks, strong-arming their customers to pay more - with no legal limit on how much they can charge.
In eight years, the major card companies have increased the fee charged to cardholders for being even an hour late with a payment to $39, from $10 or less.
Unleashing an Industry
Duncan MacDonald, who, as a lawyer for Citibank was involved in its successful case for deregulation of fees before the United States Supreme Court in 1996, now says he fears that he helped to unleash a monster.
Until that ruling, most banks still charged an annual fee of about $25 for the use of a card and a single fixed rate to all borrowers, usually around 18 percent. Applicants either qualified for the privilege of carrying a card or they did not.
"I certainly didn't imagine that someday we might've ended up creating a Frankenstein," said Mr. MacDonald, who predicted that the penalty fees could rise to $50 in another year. "I look at that and I say to myself, 'Is $50 a fair fee, plus a 25 percent interest rate and all these other fees that are thrown on, for folks who are probably not that risky? Is that fair?' "
Mr. MacDonald said federal bank regulators should investigate the fairness of universal default and some of the banks' harsh penalties. But regulators and lawmakers have been reluctant to crack down on a popular consumer product that fuels America's economic engine. Consumer spending pulled the country through the last economic downturn, powered largely by purchases financed with debt, to the tune of $2 trillion.
Few consumer products today are as cherished or reviled as credit cards. The typical household has eight cards with $7,500 on them. People like Mr. Schwebel are known as "revolvers" in the industry because they roll balances over from month to month, never paying in full.
Without the 85 million Americans who revolve, card issuers would be struggling to please their investors. But with them and the hefty finance charges they accrue from the moment cashiers swipe their cards, the industry is reaping record gains. Last year, card issuers made $2.5 billion a month in profit before taxes.
"I think it is generally understood that those that use the revolving part of the credit card are kind of the sweet spot," said Mr. Yingling of the bankers' association, who spoke on behalf of several of the biggest issuers, including Citigroup, J. P. Morgan Chase and MBNA, all of which declined to make executives available for interviews.
But the lenders' aggressive tactics have prompted a surge in complaints and lawsuits and even a warning from the primary regulator of national banks in September. In an advisory letter, the Office of the Comptroller of the Currency said banks should not raise card rates without having fully and prominently disclosed the circumstances that might cause an increase.
Changing the Terms
The case that opened up the industry came in 1978 when the Supreme Court decided that a bank could charge its cardholders any rate allowed in the bank's home state. Major banks swiftly moved their credit card operations to places like South Dakota and Delaware that had removed caps on interest rates. There is no federal limit on consumer credit rates.
After that ruling on interest rates, credit cards, which until then had generally been an uncertain business, started to look potentially lucrative. Banks began to innovate and compete. They cut the required minimum monthly payment to 2 percent of the balance, from 5 percent, to encourage customers to borrow more and stretch out the repayment. They dropped annual fees and dangled offers of low interest, or none at all, to lure new customers.
At the same time, legal teams crafted contracts of 12 or more single-spaced pages that gave the banks the leeway to change their terms whenever they wanted. A typical term sheet for a Visa card issued by Bank One, which was acquired this year by J. P. Morgan Chase, includes: "We reserve the right to change the terms at any time for any reason."
John Gould has worked in and around the credit card business for 25 years, but he said he was shocked when his wife tried to make a last-minute payment over the phone and was charged an extra $15.
"What a rip," he said. "That does get me mad."
Fees like that are accounting for a greater share of the revenue that card companies garner from their customers. Last year, they collected $11.7 billion in penalty fees, more than half of the total $21.5 billion in fees they collected from cardholders, according to CardWeb, a research firm.
Mr. Gould, a former executive of MasterCard International who conducts research for TowerGroup, a company owned by MasterCard, said he did not think that card companies were trying to trap people into financial distress. But he said it was "absurd" that 44 percent of them tell their customers that they might be penalized for one or two late payments with maximum rates that now exceed 28 percent.
This practice has gone on while the short-term interest rates set by the Federal Reserve Board have been unusually low, now at 2 percent, he noted, but the rates have been rising in recent months.
"What are they going to do if we have a spike in interest rates?" Mr. Gould said. "What are they going to start charging people, 35 percent, 38 percent? If it comes to that, you might as well go to the loan sharks."
But Andrew Kahr, a financial services consultant who devised some widely used consumer-lending strategies, including the zero-percent teaser rates, said consumers should be able to recognize that the business is a "game of chance." Interest rates shooting past 25 percent may seem scandalous to some, Mr. Kahr said, but they are "no less realistic" than the low introductory rates many cardholders receive.
The lenders offer tantalizingly low initial rates because that is what it takes to lure customers from competitors, said Mr. Kahr, who was a founder and chief executive, until 1986, of the San Francisco lending company now known as Providian. After he left, Providian ran afoul of state and federal regulators for some of its credit card practices, and agreed to a $300 million settlement.
But, he said that banks cannot earn an adequate return by lending for less than it costs them to borrow, so they look for ways to recoup losses on the low-rate chasers.
"They do better when they apply these price increases selectively to customers who statistically have become more risky, or to those who have violated the rules of the account," Mr. Kahr said.
Still, some cardholders complain that they did not know the rules until after they were punished for breaking them. Linda Sherry, editorial director for Consumer Action, an advocacy group, said "the consumer really has no rights to find out anything, to demand, 'Why is this being done to me?' "
Last month, a consumer advocacy group in San Diego, the Utility Consumers' Action Network, filed suit against Discover Financial Services, the issuer of the Discover card, asserting that it had changed the rules late in the game. The group contends that a recent rewording of Discover's universal-default policy is unfair to consumers, especially those in difficult financial situations.
The change, disclosed to cardholders in April, allowed Discover to raise the interest rate to 19.99 percent, from as low as zero, for a single late payment. But the infraction did not have to follow the revision, because Discover reserved the right to look back 11 months for a late payment that could justify the increase.
"It has gotten to the point where the fine print is becoming almost outright abusive of their customers," said Michael Shames, executive director for the consumer group. "The customers who are affected most by this practice are those who, for one reason or another, are having trouble making payments and have a large balance."
Jennifer Kang, a spokeswoman for Discover Financial, said she could not comment because of the pending litigation. Discover executives declined repeated requests for an interview.
Mr. Heller of Argus Information & Advisory Services in White Plains, the industry analyst who has studied the rate of change in credit card terms, said that his research showed that in the first half of this year, MBNA - the card issuer that doubled the interest rate for Mr. Schwebel, the Arizona engineer - repriced a smaller share of its card accounts than the industry average.
But MBNA, in the statement from Mr. Freeh, said: "If we see indications that a customer is taking on too much debt, has missed or is late on payments to other creditors, or is otherwise mishandling their personal finances, it is not unreasonable to determine that this behavior is an increased risk. In the interest of all of our customers, we must protect the portfolio by adjusting a customer's rate to compensate for that increased risk."
The Credit Score
The interest rate on a credit card is theoretically correlated to the likelihood that a borrower will make good on his debts. Lenders typically measure those odds by a three-digit number known as a FICO score.
Calculated by and short for the Fair Isaac Corporation, a company in Minneapolis, that score has become the most vital of statistics to many Americans.
Credit scores are used to determine everything from how much a person can borrow to how much he or she pays for life insurance to whether he or she can rent a home. A utility company in Texas even experimented last summer with using credit scores to set prices for electricity.
The number crunchers at Fair Isaac do not make lending decisions. They simply take information collected by the three largest credit-reporting agencies, Experian, Equifax and TransUnion, and apply mathematical formulas to boil it down to a single number on a scale that runs to 850.
"Lenders use that score, almost like a thermometer, to determine if they're going to grant credit or not," said Tom Quinn, a spokesman for Fair Isaac. He estimated that his company had calculated a credit score for about 75 percent of American adults.
The average FICO score is 720, he said. A score below 620 lands a consumer in the riskiest category, known as subprime, and virtually ensures the highest borrowing rates, if the consumer can obtain any credit at all. Credit reports generally note only those payments made at least 30 days late.
Consumers with better-than-average scores are usually, but not always, eligible for the lowest rates. As Steve Strachan, a flower importer in York, Pa., learned, a relatively high credit score does not guarantee favorable terms.
A thick credit report on Mr. Strachan from January showed a FICO score above 730, but by then he had already been through a battle with the issuer of a card that had once been his favorite method of payment.
In the 1990's, Mr. Strachan traveled frequently from his home on the West Coast to Amsterdam and other foreign cities to meet with suppliers of tulips and exotic flower varieties that he distributed to domestic florists and wholesalers. He obtained a WorldPerks Visa card that rewarded him with seat upgrades through Northwest Airline's frequent-flier program.
"I used that card whenever I possibly could because of the travel benefits," he recalled, sitting in his living room before stacks of credit card bills, change-of-terms notices and other correspondence between him and several lenders. "Never paid a penny of interest."
He was such a valued customer then, he said, that US Bank, which issued the card, had extended him a high credit limit of $54,000 even though the card rate was just one percentage point above the prime rate. When the economy wilted after the collapse of the stock market in early 2000, so did Mr. Strachan's business. He began using his credit lines on that Visa card and a few others to stay afloat, paying smaller portions of his growing balances.
Then, in May of last year, US Bank sent Mr. Strachan a letter telling him that it planned to raise the card's rate to 20.21 percent, nearly quadrupling the existing rate of 5.25 percent.
"I wasn't late, and I didn't go over the credit limit, and I didn't write bad checks," Mr. Strachan said. A representative of US Bank told him he was using too much of his available credit, he said.
A US Bank spokesman declined to comment on Mr. Strachan's account.
The monthly interest charge on his $50,000 balance jumped from $209 in June to $756 in July and $808 in August. He eventually persuaded the bank to restore the original rate, but the bank closed the account, shutting off a key source of credit.
By then, Bank One, another creditor, had compounded Mr. Strachan's woes. He was carrying a balance of about $70,000 on one account when the bank started raising his rates, first to 19.99 percent in April 2003, then to 22.99 percent the next month, then to 24.99 percent in June. By October of last year, he was incurring a monthly finance charge of about $1,500 on a $77,000 balance.
"It was like they almost all had a little meeting in the back room and said, 'Let's get Strachan,' " he said of his creditors. "How does it serve them to treat people like that? Are they trying to force them into bankruptcy?"
Lawyers he consulted advised Mr. Strachan to take the easy - and increasingly popular - way out by filing for bankruptcy protection, but he refused. He is struggling to make good on his debts "because I have principles and ethics."
But the battle to dig out of a deepening hole has taken a toll. Mr. Strachan said he had lost 30 pounds and described himself as a "broken man."
Lately, he said, Bank One has periodically reduced his credit limit to a level just above his remaining balance, leaving him little margin for error. Some months, he said, if he were to pay only the minimum due, the ensuing finance charge would put his balance over the limit, triggering a penalty fee.
By doing that, he said, "They create their own little monster."
The Regulators
Consumer complaints prompted the Office of the Comptroller of the Currency, which oversees the nationally chartered banks that constitute most of the major card issuers, to warn banks about giving fair notice of term changes and about sending out tempting offers to people who are unlikely to qualify for them.
Julie Williams, the acting comptroller, said in an interview that as long as the lenders were not intentionally deceiving their customers, they were free to set whatever rates and fees their home states allow. If customers do not want to pay a particular rate, "they have choice," she said. "They can find another card."
But consumers clearly are unhappy with the choices they have. About 80,000 people lodged complaints with the comptroller's office last year. Ms. Williams said the largest single source of their ire was credit cards. Those complaints are routed to examiners who monitor the banks, she said, but the examiners' foremost concern is to make sure the banks are financially sound.
Ms. Williams described her agency as a "tough regulator," but critics contend that the comptroller's office has taken strong action against only one major issuer of credit cards in the last five years. In 2000, the O.C.C. joined in an investigation into Providian that had been started by the San Francisco district attorney's office.
Providian customers complained that they had been hit with late fees for payments that had been sent in on time but not credited to their accounts for days or weeks. Some said the resultant penalties pushed them over their credit limits, leading to additional fees.
Later, Ms. Williams said, the two agencies joined forces to extract $300 million in a settlement with Providian.
The comptroller's office has since angered state attorneys general by trying to limit their ability to regulate how national banks behave in their states.
Eliot Spitzer, the attorney general of New York, said his office gets "thousands of complaints every year about credit card issues relating to the major banks, the major card issuers." But more often, he said, the banks' response has been that " 'we don't need to deal with you because the O.C.C. has told us - indeed, directed us - not to deal with state enforcement entities.' "
Elizabeth Warren, a professor at Harvard Law School who has been a vocal critic of consumer lenders, said the comptroller's office should do more than express discomfort with the practices of credit card companies, as it did in September.
The regulators did not say that "those are unfair practices, they are unsafe and unsound and don't do them," Ms. Warren said. "Instead, they said it's a problem. Look, if they think it's a problem, then tell the credit card companies to stop doing it."
Sunday, July 1, 2007
Credit Cards that suck!
I have started this blog with the mission to expose some of the horrible credit card experiences of many Americans like myself. It is dedicated to the banks that are profiting through "fine print" predatory policies which permit legal loan sharking and which seem to operate under the blessing of laws written by them.
Consumer debt has been for ages the drive behind our economy and it has been always thought as the American way! The prime example is the American Government which has borrowed trillions to finance a war in Iraq, budget shortfalls, and federal mismanagement. Americans are often encouraged to help the economy by spending even when it is known that most of the spending at the middle and lower classes is financed by credit cards and consumer loans since salaries have been slow in adjusting to the increase in cost of living. That is demonstrated by the rising consumer debt which now stands at approximately 2.5 trillion US dollars. Low interest rates in the early 2000's motivated several people with good credit history to accumulate debt at the encouragement of the Federal Reserve and the banks who bombarded responsible consumers with attractive borrowing rates and exceptional offers. Now interest rates are going up and these same banks are using predatory techniques to often raise rates to 29.9% and above using as an excuse "excessive borrowing" or some other "fine print" in agreement ammendements that are sent as often as once a month.
My experience starts with a Bank One card with an 8% interest rate and a situation where I decided to take advantage of my responsible and exceptional credit history. Family health problems were calling for some unforseen expenses that led me to ignore a rising balance on my card although I was making 4-5 times the minimum payment. The low interest rate kept me from taking an equity loan which would have been on a fixed rate and for a while everything seemed fine and I was on my way of paying off my balance. That is until Chase Bank bought Bank One and agreement amendments started to arrive at a rate of one a month. As many I did not pay close attention to the amendments simply because there is good faith to ethical and fair business practices. Obviously that is not the case with Chase which suddenly started raising rates at 8-10% interest increments until my interest rate was adjusted to 29.9%. To my dismay the bank refused to consider any review because according to them I was now a credit risk and had excessive debt! The interactions with them had been quite an experience but I do not want to repeat the hundreds of similar stories I discovered on the internet. My question which remains up until today ( I have paid off the balance and I am Chase free) is the rational of a loan shark rate when somebody suddenly is a credit risk. Isn't a higher interest rate almost guaranteeing default?
In my quest for an answer to my question I discovered hundreds of similar stories and some interesting facts. I would like to use this blog to share these facts, and offer tips and advice whenever I can. Furthermore I would like to accumulate your views and opinions about "Credit Cards that Suck"!
Thank you for visiting.
George
Consumer debt has been for ages the drive behind our economy and it has been always thought as the American way! The prime example is the American Government which has borrowed trillions to finance a war in Iraq, budget shortfalls, and federal mismanagement. Americans are often encouraged to help the economy by spending even when it is known that most of the spending at the middle and lower classes is financed by credit cards and consumer loans since salaries have been slow in adjusting to the increase in cost of living. That is demonstrated by the rising consumer debt which now stands at approximately 2.5 trillion US dollars. Low interest rates in the early 2000's motivated several people with good credit history to accumulate debt at the encouragement of the Federal Reserve and the banks who bombarded responsible consumers with attractive borrowing rates and exceptional offers. Now interest rates are going up and these same banks are using predatory techniques to often raise rates to 29.9% and above using as an excuse "excessive borrowing" or some other "fine print" in agreement ammendements that are sent as often as once a month.
My experience starts with a Bank One card with an 8% interest rate and a situation where I decided to take advantage of my responsible and exceptional credit history. Family health problems were calling for some unforseen expenses that led me to ignore a rising balance on my card although I was making 4-5 times the minimum payment. The low interest rate kept me from taking an equity loan which would have been on a fixed rate and for a while everything seemed fine and I was on my way of paying off my balance. That is until Chase Bank bought Bank One and agreement amendments started to arrive at a rate of one a month. As many I did not pay close attention to the amendments simply because there is good faith to ethical and fair business practices. Obviously that is not the case with Chase which suddenly started raising rates at 8-10% interest increments until my interest rate was adjusted to 29.9%. To my dismay the bank refused to consider any review because according to them I was now a credit risk and had excessive debt! The interactions with them had been quite an experience but I do not want to repeat the hundreds of similar stories I discovered on the internet. My question which remains up until today ( I have paid off the balance and I am Chase free) is the rational of a loan shark rate when somebody suddenly is a credit risk. Isn't a higher interest rate almost guaranteeing default?
In my quest for an answer to my question I discovered hundreds of similar stories and some interesting facts. I would like to use this blog to share these facts, and offer tips and advice whenever I can. Furthermore I would like to accumulate your views and opinions about "Credit Cards that Suck"!
Thank you for visiting.
George
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