Credit card companies jacking rates, etc. to beat new consumer law

[Andy9o8 2]

http://www.cnn.com/2009/POLITICS/10/09/credit.card.outrage/index.html

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Some credit card companies rush to act before new law

WASHINGTON (CNN) -- If you hold a Discover credit card, you're in luck -- the company has decided to freeze interest-rate hikes until a new credit card consumer protection bill takes effect in February.

Bank of America was the first company to freeze its rates. Both moves come after outrage over credit card companies jacking up rates, increasing minimum payments and raising penalty fees before the new consumer protection law -- which would bar sudden increases -- is phased in.

Rep. Betsy Markey, D-Colorado, and 17 other lawmakers sent letters to credit card banks asking them voluntarily to freeze their rates while Congress decides whether to move up the phase-in date for the new law to December.

Markey said a CNN report about Ohio couple Chuck and Jeanne Lane inspired her to act. The Lanes said they did everything right but felt bankrupted by a sudden change in their credit card payments.

The Lanes have a low-interest Chase credit card that was sold as a way to consolidate large debts and pay them down responsibly over time. The Lanes showed CNN that they have excellent credit, have never been late with a payment and in the last two years cut their outstanding balance in half. They said they were shocked when Chuck opened their online statement to discover Chase had driven up their monthly payment from $370 to $911.

"I was devastated," Chuck Lane said.

[dreamdancer 0]

the credit card meltdown is taking a while but on its way...

stay away from moving propellers - they bite
blue skies from thai sky adventures
good solid response-provoking keyboarding

[Rookie120 0]

Holy SHIT! How much does that card have to be cranked up to have a $370 minimum payment? From the sounds of it they have more problems that just the interest rates going up.

If you find yourself in a fair fight, your tactics suck!

[justinb138 0]

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Holy SHIT! How much does that card have to be cranked up to have a $370 minimum payment? From the sounds of it they have more problems that just the interest rates going up.

That's kind of what I was thinking.

[Andy9o8 2]

It's just 1 anecdote cited. I'd urge people to read the whole article. In the interest of space, I only pasted the first few paragraphs.

[Rookie120 0]

SO the moral of the story is don't use credit cards!

If you find yourself in a fair fight, your tactics suck!

[Andy9o8 2]

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SO the moral of the story is don't use credit cards!

There are a few morals of this story. That may be one of them.

[kallend 2,027]

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SO the moral of the story is don't use credit cards if you can't afford to pay the bill!

...

The only sure way to survive a canopy collision is not to have one.

[justinb138 0]

http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff

[Gawain 0]

The unfortunate reality is that a majority of the existing unsecured debt (not current mind you, but all unsecured debt) is held by those that should not have had it extended to them (not unlike the housing fiasco). This whole thing has been referred to in some areas as the "democratization of debt".

Most credit card holders carry a balance. In the midst of this contraction of credit, the only "money saving" options to do is to pay off that unsecured debt as quickly as possible, because the rates are going to go up, and the accounts are going to get called, closed or sold to collections.

Obviously, this is not always possible. What to do? Do some shopping. The local banks and credit unions are far more likely to work with you than these government owned/bailed-out titanic institutions. It's not a guarantee, but it's feasible.

So I try and I scream and I beg and I sigh
Just to prove I'm alive, and it's alright
'Cause tonight there's a way I'll make light of my treacherous life
Make light!

[xtravrtsoul 0]

HSBC is the worst right now. Yes I have credit with them because I bought my motorcycle through them and they have jacked up the rates. I need to pay it off as soon as possible.

You create life, life does not create you.

[Andrewwhyte 1]

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HSBC is the worst right now. Yes I have credit with them because I bought my motorcycle through them and they have jacked up the rates. I need to pay it off as soon as possible.

You bought a motorcycle on a credit card?

[Gawain 0]

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HSBC is the worst right now. Yes I have credit with them because I bought my motorcycle through them and they have jacked up the rates. I need to pay it off as soon as possible.

You bought a motorcycle on a credit card?

I've seen that lots of times. Buying on a credit card, hold the title, try to save on little or no insurance.

So I try and I scream and I beg and I sigh
Just to prove I'm alive, and it's alright
'Cause tonight there's a way I'll make light of my treacherous life
Make light!

[georgerussia 0]

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The Lanes have a low-interest Chase credit card that was sold as a way to consolidate large debts and pay them down responsibly over time.

Getting a consolidation loan when the interest rate is adjustable whenever the lender wishes doesn't sound like a smart idea to me.

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Ridout described the tactic as bait-and-switch because Chase sold the cards as low interest and now is making the card unaffordable to many customers unless they switch to a higher interest rate.

I disagree. Their credit card agreement likely said that the rate is not fixed, and could be changed by the company to any value in a range when a new billing cycle starts. So basically the card was sold as "low interest for one month". Maybe it was not what the ad said, but a reasonable adult nowadays should not trust any advertisements anyway.

* Don't pray for me if you wanna help - just send me a check. *

[Andy9o8 2]

You make reasonable points. But in, for just one example, the area of consumer protection law in the US, there's a concept called "least sophisticated consumer". Basically, it means that a certain business practice - and in particular, the "fine print" in a contract, disclosure statement, etc. - may be deemed to be "deceptive" (or null and void) if a hypothetical "least sophisticated consumer" would tend to misunderstand, or fail to notice, or fail to recognize the full import of such written language.

In the Lanes' case, it seems that the "LOW INTEREST CONSOLIDATION!!" part was trumpeted loud and clear in the CC company's ads, while the "variable interest" part was buried in the tons of small-print gobbledygook in the disclosure statement. That's exactly the kind of chicken-shit that consumer laws are written to protect against. And that's why state attorney generals' offices' consumer protection divisions in every state in the country have huge caseloads stemming from this kind of thing.

Credit card companies are notorious for straddling (and often crossing) the "least sophisticated consumer line" as a way of preying on (or, at least, deliberately taking advantage of) a population subset that is most likely to unwittingly sign on to these bad deals and least likely to be able to defend themselves once the trap has been sprung.

Were the Lanes unsophisticated consumers? I really don't know. I'm not trying to absolve them, in particular, from all personal responsibility. But the fact that these things happen so often to people who don't fully appreciate, until it's too late, what they've gotten themselves into, and yet the CC companies keep doing it, over and over, shows that the ethics of these companies are in the gutter.

[kallend 2,027]

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You make reasonable points. But in, for just one example, the area of consumer protection law in the US, there's a concept called "least sophisticated consumer". Basically, it means that a certain business practice - and in particular, the "fine print" in a contract, disclosure statement, etc. - may be deemed to be "deceptive" (or null and void) if a hypothetical "least sophisticated consumer" would tend to misunderstand, or fail to notice, or fail to recognize the full import of such written language.

In the Lanes' case, it seems that the "LOW INTEREST CONSOLIDATION!!" part was trumpeted loud and clear in the CC company's ads, while the "variable interest" part was buried in the tons of small-print gobbledygook in the disclosure statement. That's exactly the kind of chicken-shit that consumer laws are written to protect against. And that's why state attorney generals' offices' consumer protection divisions in every state in the country have huge caseloads stemming from this kind of thing.

Credit card companies are notorious for straddling (and often crossing) the "least sophisticated consumer line" as a way of preying on (or, at least, deliberately taking advantage of) a population subset that is most likely to unwittingly sign on to these bad deals and least likely to be able to defend themselves once the trap has been sprung.

Were the Lanes unsophisticated consumers? I really don't know. I'm not trying to absolve them, in particular, from all personal responsibility. But the fact that these things happen so often to people who don't fully appreciate, until it's too late, what they've gotten themselves into, and yet the CC companies keep doing it, over and over, shows that the ethics of these companies are in the gutter.

Jesus would surely have thrown them out of the Temple.

...

The only sure way to survive a canopy collision is not to have one.

[georgerussia 0]

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You make reasonable points. But in, for just one example, the area of consumer protection law in the US, there's a concept called "least sophisticated consumer". Basically, it means that a certain business practice - and in particular, the "fine print" in a contract, disclosure statement, etc. - may be deemed to be "deceptive" (or null and void) if a hypothetical "least sophisticated consumer" would tend to misunderstand, or fail to notice, or fail to recognize the full import of such written language.

The problem I see here is that to have this part of contract to be deemed deceptive one should take some significant efforts, like going to the small claims court (if it has jurisdiction about such things), or going to superior court with an attorney (money) or without an attorney (much more effort). And at this moment the company may already be out of business, which would make this a Pyrrhic victory.

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In the Lanes' case, it seems that the "LOW INTEREST CONSOLIDATION!!" part was trumpeted loud and clear in the CC company's ads, while the "variable interest" part was buried in the tons of small-print gobbledygook in the disclosure statement. That's exactly the kind of chicken-shit that consumer laws are written to protect against.

And that's why state attorney generals' offices' consumer protection divisions in every state in the country have huge caseloads stemming from this kind of thing.

This is strange to me. I admit my English is still far from perfect, but still to me "low interest rate" and "fixed interest rate" mean different things. And "low" does not assume "fixed", nor it makes an assumptions that it would stay low forever. But maybe it's just me - when I deal with ads, I assume the worst case scenario, and if there is a fine print I can't read, I assume it says "everything written above is false, and the only thing we guarantee that we want your money" -> fuck you then, you won't get any.

But in my opinion it doesn't matter. Businesses are just digging themselves (and the advertisement industry) a nice large grave. My impression is that more and more people nowadays simply do not trust any ads - which means that advertisements are much less effective now, and at some point might seriously damage or even destroy the whole advertisement industry.

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But the fact that these things happen so often to people who don't fully appreciate, until it's too late, what they've gotten themselves into, and yet the CC companies keep doing it, over and over, shows that the ethics of these companies are in the gutter.

The more I read about modern business practices, the more disgusted I am. There seem to be no ethics or honor in most businesses nowadays, their management considers it bad for profit. Only profit matters, and a lot of businesses are willing to trade their reputation for short-term profit.

* Don't pray for me if you wanna help - just send me a check. *

[FallingOsh 0]

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In the Lanes' case, it seems that the "LOW INTEREST CONSOLIDATION!!" part was trumpeted loud and clear in the CC company's ads, while the "variable interest" part was buried in the tons of small-print gobbledygook in the disclosure statement.

Gobbledygook? That's what you call the language in a binding legal document that you're signing? Maybe we've found the root of the problem.

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Credit card companies are notorious for straddling (and often crossing) the "least sophisticated consumer line" as a way of preying on (or, at least, deliberately taking advantage of) a population subset that is most likely to unwittingly sign on to these bad deals and least likely to be able to defend themselves once the trap has been sprung.

There will always be a 'least sophisticated' group. The only way to eliminate the potential for someone 'unwittingly' signing a contract is to make it illegal for certain people to attain those priviledges (ie, credit cards). I'm not sure how well that would go over putting a minimum IQ limit on credit card applications.

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Were the Lanes unsophisticated consumers? I really don't know. I'm not trying to absolve them, in particular, from all personal responsibility. But the fact that these things happen so often

How often does it really happen? For every story like this reported, there are hundreds who have no issues with their credit cards. Is there really any way to say 'this happens so often?'

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to people who don't fully appreciate, until it's too late, what they've gotten themselves into, and yet the CC companies keep doing it, over and over, shows that the ethics of these companies are in the gutter.

Ok, this bothers me. I'm not defending everything the CC companies do. Credit is a dangerous game, but like it or not, credit companies are indeed companies. They are businesses trying to stay afloat just like everyone else in the country. If they jack their rates up as their contracts allowed, then it sucks... but they're trying to survive the recession, too.

Like you said, I don't know the details of the Lane's situation, as the article was fairly vague. On the surface it sounds like a shitty deal for someone who claims to have perfect credit. Bottom line, if you want to avoid situations like this:

A. Don't sign something you didn't read or don't understand.

B. Don't rack up thousands upon thousands worth of debt.

--------------------------------------------------
Stay positive and love your life.

[Andy9o8 2]

You've completely missed (which I doubt), or are simply evading (which I believe), the essential points of my post. I'm not playing the game.
Here's your rock.

[DrewEckhardt 0]

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Holy SHIT! How much does that card have to be cranked up to have a $370 minimum payment?

$18,500.

With deals like 2.99% interest until the loan was paid off and no transfer fees, many people moved car loans, remodeling projects which were on their HELOC, student loans, etc. onto credit cards.

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From the sounds of it they have more problems that just the interest rates going up.

This problem is most likely the credit card companies increasing their minimum payment from 2% of the balance to 5% which turns $370 into $925 (less a bit for whatever the last payment did to the principle)

The solution in this case is rejecting the new terms in writing within the specified time window and closing the account with the balance paid off under the old terms. Obviously that means one less credit card and a credit score decrease from the increased credit utilization and perhaps account longevity.

The underlying issue is that credit card companies are allowed to change the terms any time they want.

[DougH 270]

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Markey said a CNN report about Ohio couple Chuck and Jeanne Lane inspired her to act. The Lanes said they did everything right but felt bankrupted by a sudden change in their credit card payments.

The Lanes have a low-interest Chase credit card that was sold as a way to consolidate large debts and pay them down responsibly over time. The Lanes showed CNN that they have excellent credit, have never been late with a payment and in the last two years cut their outstanding balance in half. They said they were shocked when Chuck opened their online statement to discover Chase had driven up their monthly payment from $370 to $911.

"I was devastated," Chuck Lane said.

Evil companies, how dare you charge interest and minimum fees to this couple that ran up a huge credit card balance and is obviously a credit risk.

They didn't rack up a 18K balance on their other cards because Chase sent them an offer. It was there financial choices that earned them an 18K balance in the first place. And they would be in the same boat if Chase had never sent them an offer.

No one put a gun to their head and told them to carry a balance. If they want to piss money down the drain in the form of interest go right ahead.

Guess how much the minimum payment is on a paid in full zero balance... zero dollars a month.

I felt the same way when I was ratejacked on a few of my cards despite being a lower credit risk. Then I realized it was my own fault, and I paid of all my balances. I made the choice to carry a balance on a financial transaction that could be reevaluated and changed monthly.

A credit card isn't a mortgage with rates and terms set in stone. They are granting you the priveledge of credit. If you want to carry a balance then you get what you get.

It is right on the back of every statement you get, and the original paperwork you received with the card. Credit limits, minimum payments, interest rates; all can be changed at any time at their discrection. What is wrong about that?

If you don't like it PIF, or use cash & debit!!!

"The restraining order says you're only allowed to touch me in freefall"
=P

[DougH 270]

So who here is willing to put up the 18K to give this couple a "reasonable" fixed rate loan. Put your money where your mouth is.

Are you going to grit you teeth and wish that you hadn't given them a fixed rate when you notice that they have started to run up a large balance, again, on the cards you just paid off for them?

Of course you are going to make the monthly payment very low and stretch out the term into the far far future right?

"The restraining order says you're only allowed to touch me in freefall"
=P

[Andy9o8 2]

FWIW, I also represent a lot of business and banking creditors (as well as consumer debtors) in collection matters, so I really don't have a strictly one-dimensional perspective about this.

In fairness, basic prudent business practice dictates that creditors loaning money to higher-risk debtors charge higher interest rates so as to offset some of that higher risk. And yes, the same logic applies when uncollateralized debtors (such as credit card debtors) evolve from lower-balance (and thus lower-risk) debtors to higher-balance (and thus higher-risk) debtors: the creditor is inclined, if permitted, to raise the interest rate to account for the higher risk represented by the higher balance.

At that point, the creditor needs to make a sensible business decision, which if it's being prudent, and not just using a set-in-stone calculation (or being a hardass), means BALANCING its inclination to raise the interest rate with not raising it so high that the debtor can't afford the new higher payment and just defaults on the debt. Believe me, it's VERY hard to actually collect on a defaulted uncollateralized debt, even if the creditor has a court judgment. So, say, raising a $300 payment to $450 might be workable; but if the payment is raised from $300 to $900, and the result is that the debtor just defaults altogether, the creditor winds up having shot itself in the foot. If I was a shareholder of the creditor, I wouldn't be too happy with that.

Another point. Yes, debtors and potential debtors ought to exercise sound responsibility. But so do creditors. And creditors are frequently more sophisticated than consumer debtors, which means that, just like parents, creditors have to know when to say "no" or "no more" to debtors who sometimes are too simple or too reckless to do so for themselves. That means either not extending credit to high risks, or setting prudent maximum credit limits so that a low-balance/risk debtor doesn't morph into a high-balance/risk debtor, and ultimately a delinquent debtor.

The Lanes' $18K balance is awfully high. They probably shouldn't have let it get that high. But in fairness, if the credit card company had been responsible, it would have cut off the Lanes' credit limit at a much lower ceiling, rather than having rolled the dice on making a faster profit by allowing the balance cross the threshold where the rate/payment would jump so high that it could be predicted that the Lanes would find it untenable.

[DougH 270]

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The Lanes' $18K balance is awfully high. They probably shouldn't have let it get that high. But in fairness, if the credit card company had been responsible, it would have cut off the Lanes' credit limit at a much lower ceiling, rather than having rolled the dice on making a faster profit by allowing the balance cross the threshold where the rate/payment would jump so high that it could be predicted that the Lanes would find it untenable.

I am sure the facts will show that they racked up the 18k balance over a fairly long period of time, with multiple credit card companies.

I am fairly confident that they were playing with the balance transfer merry go round, and using a period of loose credit to keep utilization artificially low and credit scores high, despite a debt that they couldn't support over time.

Most likely the Lane's debt was untenable had they continued to carry the balance with the OC's.

This was just the end of the loose credit market gravy train for them. They should have budgeted better and got off at an early station.

"The restraining order says you're only allowed to touch me in freefall"
=P

[rhaig 0]

the balance transfer game is how I got in over my head.

at the top end it was more than $60K that I was paying an average of about 15% on. Have since cancelled all those accounts and negotiated the rates down and am 2 years into a 5 year payoff plan. my total payoff is going to be about 90K over 5 years.

I didn't have any companies raise my rates without reason. In hindsight I wish they had and I might not have gotten that deep in the hole.

In any case, it was my fault, and I was not victimized by the credit card companies.

--
Rob