It was a note from Capital One, her credit card company. It said it would raise the interest rate on her credit card to 17.9 percent, from 11.9 percent “due to extraordinary changes in the economic environment.” The change would be in effect in two months.
“I don’t understand,” said Asch, who lives in Linden. “I’ve had the card and the 11.9 percent interest rate for nine years and I’ve never been late on a payment.”
Given her solid payment history and her good credit score, Asch figured there might be an error. She called the company to negotiate for a better rate. She got nowhere, so she contacted Bamboozled for help.
Last month, Capital One sent similar letters to many customers — the company declined to say to how many of its 37.4 million accounts — notifying them that their interest rates would rise.
Capital One spokeswoman Pam Girardo said she couldn’t discuss the particulars of any one cardholder, but the basic reasons for the hike are the same for everyone.
“The decision was based on a number of factors, including the cardholder’s current interest rate and the length of time they’ve had that rate and the account,” Girardo said.
Credit card customers everywhere are finding similar changes to their accounts, and they’re just as surprised as Asch was. Most credit card contracts state that the company can change the terms of your account for any reason, at any time, as long as you’re given 15 days written notice.
Changes are coming, but not soon enough for struggling consumers. In December, the Federal Reserve Board issued new regulations limiting what it called “certain unfair acts and practices.” The rules prohibits interest hikes on previous balances and limits other surprise interest rate changes. The problem: The rules won’t take effect until July 2010.
Now Congress is taking on this issue. Proposed legislation would address many of the same issues as the Fed’s rules, but with a much faster deadline.
Consumer advocates like Linda Sherry, director of national priorities at Consumer Action, applaud the moves, but say they don’t go far enough.
“It does nothing to protect hardship cases,” Sherry said. “There is no opt out required, no rules to prevent closing inactive cards, or lowering credit limits, and no limits on excessive and unreasonable fees.”
The credit card industry says such legislation, along with the Fed’s new rules, could mean higher interest rates across the board and tighter credit for consumers. (One could argue that stiffer lending isn’t a bad thing, because lenders have for years extended credit to those who shouldn’t qualify, but that’s another column.) Consumer advocates say something must be done to help cardholders who are struggling today.
“If a cardholder is carrying a large balance, a significant hike in rates may mean that the minimum required monthly payment will jump substantially, which means the cardholder may not be able to meet the monthly payment,” Sherry said.
What consumers can do
Bamboozled asked Capital One to do right by this long-time customer, but Girardo said she’s not in the position to help.
“She can call customer service,” she said.
Been there. Done that.
Of course lenders, like anyone else who provides a service, should make money. And yes, credit card companies are in the red in part because of delinquencies, which are now at record highs. Given this environment, raising rates on everyone — even the responsible customers — seems counterintuitive. Penalizing “good” customers isn’t good business.
Capital One customers who received the interest rate notification have a generous 45 days, rather than the required 15 days, to accept the contract changes or opt out. Opting out means customers will keep their current rate until they pay off the balance, however long that takes, but their account would be closed and they’d lose any rewards points that may have accumulated.
Opting out is exactly what Asch plans to do. She’ll pay off her existing balance with Capital One, then use one of her other credit cards for new purchases.
“They made the mistake by giving people credit who didn’t deserve it or who overextended themselves,” Asch said. “I keep my credit in good standing. I’m not going to pay for other people’s mistakes.”