Terms Are Changing On Credit Cards

PERSONAL FINANCE

July 07, 2009|By EILEEN AMBROSE

The Rev. Nathaniel Pierce of Trappe says he transferred his credit card balance to a Chase card a few years ago after getting assurances of a low interest rate and low monthly minimum payments.

Now, Pierce accuses Chase of bait and switch tactics. Chase notified Pierce that starting next month, his minimum payment is going from 2 percent to 5 percent of his outstanding balance, roughly raising his monthly payment from $100 to $250. He suspects the shift is tied to credit card reforms that take effect in February.

"Retaliation has begun," he says. "It's the beginning of more to come. And that's what's scary."

Credit card experts say such a steep increase in minimum payments isn't common yet, though other issuers might follow suit. Meanwhile, card issuers have been raising interest rates and lowering credit limits, and that has gained momentum since credit card reform legislation was signed into law in May. The average annual percentage rate has gone up from 13.57 percent in April to 13.81 percent, according to CardRatings.com. And balance transfer fees have gone from 3 percent to 4 percent or 5 percent.

Last week, New York Sen. Charles Schumer called again on the Federal Reserve to freeze rates on outstanding card balances to prevent card issuers from increasing rates before reforms kick in next year.

Credit experts, though, warn consumers to expect more changes in card terms.

"Buckle your seat belt. Between now and late February when the legislation takes effect, we will see issuers continue to raise credit card rates as well as institute new and higher fees," says Greg McBride, senior financial analyst with Bankrate.com.

In Pierce's case, Chase promised him a fixed rate of 3.99 percent until he paid off his balance. Pierce and his wife each got a Chase card. He says they always pay on time and usually more than the minimum.

He called Chase to complain about the change in minimum payments. "They said, 'Look on the bright side. You will pay off your loan quicker,' " he says. "But that's not the deal."

Pierce figures if other card issuers take a similar action, his annual card payments would go from $6,000 to $15,000.

Chase says less than 1 percent of customers were notified last month that their minimum payment was going up to 5 percent. Spokeswoman Gail Hurdis wrote in an e-mail that the company constantly evaluates the risk and cost of making credit card loans. "The way customers use and maintain an account helps us determine what changes to make in order to protect our customers and our company," she says.

Ken Clayton, a spokesman with the American Bankers Association, says card issuers are dealing with rising delinquencies and record defaults. At the same time, the cost to borrow money to lend to consumers has gone up for card issuers, he says. And card issuers also are responding to card reforms that will restrict risk-based pricing where the riskiest consumers pay the highest rates and fees, Clayton says.

If you get a letter from your card issuer, don't assume it's useless marketing material.

"This time, open it up and read it. It might actually be important, stating your rate or fees are going up," says Ruth Susswein, a deputy director with Consumer Action. "The smaller the print, the more important it is."

Call the issuer if you are unhappy with a change of terms, although this doesn't always work. "Some consumers have been successful negotiating with lenders, even today," Susswein says.

And, if you're still unhappy, try shopping around for another card.

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