remember the The Credit Card Accountability Responsibility and Disclosure Act of 2009 ... that was supposed to protect credit card holders from unannounced interest rate hikes and 'lower' penalty and other credit card charges ?
from
http://www.newdeal20.org/2011/03/09/...r-later-38103/
(snip)This week’s credit check: Some credit cards have a 79.9% APR and others charge $135 a year in fees.
February marked the one-year anniversary of the second phase of the CARD Act’s roll out. The first phase, in August 2009, required that creditors give a written 45-day notice to consumers before jacking up interest rates or other significant changes to the account. The second phase eliminated retroactive interest rate changes except on accounts where the consumer is 60 days late and barred raising rates for the first year, required clear disclosure of the card’s terms before borrowers open accounts, required that consumers opt in to overdraft fees, made sure card companies apply payments to the higher interest balance first, and put in roadblocks to giving cards to people under 21 who don’t have a co-signer.
So how’s it going, one year later? There have been some important improvements. All of those rules help level the playing field for consumers. A study conducted by Consumer Reports this past summer found that 23% reported they are making payments larger than the minimum as a result of warnings on their bill. The power of knowledge appears to be the biggest victory, and it’s no small one. Howard Dworkin, founder of Consolidated Credit Counseling Service, estimates that $12.1 billion in previously obscure yearly charges are now stated more clearly. As Elizabeth Warren predicted in 2010, “Most consumers — those willing to act responsibly — would thrive in a credit market place that makes costs clear up front” and transparency would create “an efficient and more competitive financial system.”
But outrageous practices are far from being a distant memory. Take the case of Toni Riss, a 58-year-old woman from Texas who found herself with a whopping 79.9% APR. After a motorcycle accident led her to bankruptcy (as health problems often do — the top three reasons families’ finances collapse are major medical events, job losses, or divorce), her credit had gone “to hell in a hand basket,” as she says. So she sought out a card for those with bad credit. Given her bad score, the offer of a $300 limit and a starting rate of 29.9% seemed reasonable — until six months later, when she got a notice that it was jumping to 79.9%.
Right about that time, First Premier Bank launched a card with a starting rate of 79.9%. While it was popular, it proved disastrous: “
A lot of the people ran up the card, defaulted and went directly to charge off,” said the card unit’s CEO Miles Beacom. (No one could have seen that coming.) That’s bad for business — the key is to get customers in the sweat box, where they carry a balance and rack up fees without going straight to charge off. So the bank lowered the rate to 59.9%, and now 280,000 have a card at that rate, with more than half of those carrying a balance. There’s that sweet spot where the profits from fees and interest roll in!
All of this is legal. While the bank denies that Riss’ rate could have gone up so dramatically,
as long as they gave her 45 days notice it is within the confines of the CARD Act. And a starting rate of 79.9%, while pretty ridiculous, is totally kosher. It appears that new fees and higher upfront rates may be the new norm. In fact, CNNMoney reports:
First Premier charges a total of $135 per year in fees. It starts with a $45 processing fee to open the account. Then there’s an annual fee of $30 for the first year — $45 for every subsequent year. Plus, there’s a monthly servicing fee of $6.25 (or $75 a year).
Average interest rates have also risen, from just above 13% to 14.7%, although it’s unclear if this is due to the Act itself or the poor economic climate.
Indeed, it seems the losers of this act are those perhaps most vulnerable: the ones with poor credit. “
The affluent still have affordable access to credit cards and lucrative reward programs,” notes Tim Smith, senior vice president at Firstsource Solutions, a business processor outsourcing company.
But those with less-than-perfect credit are even more disadvantaged than they were to begin with. Issuers have cut credit lines, and line utilization is an important factor in credit scores — so this will only serve to make bad scores worse. Late charges may come packed with a one-two punch: “If you’re late, not only are you assessed late charges, but often receiving notice of an immediate interest rate increase at the same time,” warns Kevin Gallegos, a vice president at Freedom Debt Relief. And more fees are likely to come.
The banks claim that all of this is to protect themselves from the risk of less credit worthy customers — but then why is First Premier fiddling with high interest rates to attract more subprime customers carrying a balance? (snip)