Credit card holders getting hit as new law looms
As the clock ticks down before tough new federal regulations on credit cards take effect in February, banks have been jacking up rates, creating new fees and, in some cases, simply dropping dues-paying customers who are not generating enough profit.
“It’s worse than what was anticipated,” Curtis Arnold, founder of CardRatings.com, which monitors credit cards rates, said of the measures banks are now taking. “It’s a radically different landscape.”
Arnold said interest rates across the board have been going up since May, when the new law was passed, and he expects the average to be 15 percent by early next year, up from around 12 percent in the spring.
In addition, annual fees, which have not been charged by most cards since the 1970s, are making a comeback. Some banks are charging “inactivity fees” to people who don’t use their cards enough, while others are switching consumers from fixed to variable rates.
After the new law hits the books, introductory rates will have to be locked in for at least six months.
“They’re trying to be creative in the ways they can raise revenue,” said Ben Woolsey, director of marketing for Creditcards.com, an online research firm. “They’re either raising the fees or setting slightly more sensitive triggers for incurring fees.”
That’s exactly what happened to Geraldine Salvayon, 66, of Jackson Heights, whose rate on her Chase card nearly doubled, from 9 percent to 16 percent.
“I’m never delinquent with my payments,” she said. “They gave me no definitive reason for the increase.”
Gary Kaminsky, 54, of Manhattan pointed out that the terms are difficult to decipher.
"You have to be an engineer to understand how the banks calculate those minimum payment,” he said.
Indeed, customers who pay their bills in full and don’t spend lavishly can cost banks money because there isn’t much revenue coming in from merchant fees or penalties for late payments. Some of those people are losing their accounts.
Lauren Bowne, spokeswoman for Consumers Union, said her organization has gotten dozens of complaints from people who had their monthly minimum payments raised unexpectedly.
“People went from $200, $300 minimum payments to $1,200," she said. "These people haven’t done anything wrong, they haven’t defaulted on their payments they just had the terms changed on them.”
The industry acknowledges that consumers, even responsible cardholders with good credit, are feeling the pain.
Carol Kaplan, a spokeswoman for the American Bankers Association, said the new rules make it more difficult to charge according to credit risk, so everyone’s costs will go up.
“The entire business model is being changed,” she said.
Others dispute that, saying banks are simply trying to maximize profits during the down economy.
“The credit card companies like to say this law is forcing them to raise rates,” Bowne, said.
“But they’re just trying to protect their bottom lines and they’re doing it on the back of the consumers.”
Phoebe Kingsak contributed to this report