Card Crunch

Bank Mergers Limit Consumers' Options - And Can Affect Their Bottom Lines

April 26, 2009|By Hanah Cho | Hanah Cho,hanah.cho@baltsun.com

When I signed up for a Washington Mutual credit card several years ago, I was lured by the bank's attractive rates and benefits: a fixed 5.9 percent interest and a free credit score each month.

WaMu no longer exists after a near-collapse and sale to JPMorgan Chase amid the financial sector meltdown last fall.

Now, as a Chase customer, my rate nearly doubled to 10 percent. And I don't get free credit score updates anymore.

A recent wave of bank mergers is leaving consumers with questions about what happens to their accounts and other products. Some changes are minimal; others can affect your bottom line.

The terms of your old loans, mortgages and certificates of deposit will be honored by banks, says Greg McBride, senior financial analyst at Bankrate.com.

But when it come to credit cards, consumers have limited rights. Banks may alter your terms at any time, so long as you're informed of the change.

"Bottom line, consumers don't have much leverage over the situation," said Ben Woolsey, director of marketing and consumer research at Creditcards.com. "Even if Washington Mutual had not been taken over by Chase, Washington Mutual could have changed your terms for any reason.

"You may have had some features with the previous account; the acquiring bank has no right or obligation to continue those kinds of things," he added. "If they change it, they'll have to tell you."

New regulations are set to go into effect in July 2010, and they would bar issuers from raising rates on existing balances except in certain conditions, such as when a promotional rate ends, a variable rate adjusts or a consumer makes a late payment.

A House committee approved a credit-card bill of rights last week that imposes stricter restrictions than the ones scheduled to go into effect next year. And President Barack Obama, who met with executives from the industry, said credit-card issuers should be prohibited from imposing unfair rate increases on consumers.

In the meantime, consumers (like me) face a take-it-or-leave-it proposition: Accept the new terms offered by the new bank, or decline to do so and effectively close the account and pay off the balance if there is one.

If they accept the new terms and have a balance, the higher rate would mean additional costs, creating more of a financial burden.

But the latter choice can harm your credit score because available credit on all cards is reduced, said Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling.

The upside is that cardholders can pay back their debt under old and lower rates, and "they won't be any worse off financially than they were before the takeover," Cunningham said.

Chase informed WaMu customers of changes in January, and about 20 million accounts were converted to Chase last month, a company spokeswoman said.

Chase says customers "impacted by a pricing increase are provided an opt-out option that allows them to decline the rate increase, close their accounts and pay off the balance at the lower rate over time."

Regarding WaMu's free credit scores, Chase said in an e-mail the bank is evaluating ways to provide the service to its customers.

A third option for consumers is to shop around for better deals, especially if you have good credit.

"Don't take this sitting down," said McBride of Bankrate.com. "It's a very competitive marketplace. ... Deals are still getting done. Whether it's new credit cards issued, mortgages being given to qualified borrowers, for someone who has good credit and low balances, this is the time to be looking around for better deals."

And don't be afraid of calling the bank and asking that your old terms be reinstated, especially if you have been a good customer.

But if you threaten to take your business elsewhere, make sure you have a backup plan, McBride said.

Bloomberg News contributed to this article.

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