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Survey: Banks Change Credit Card Terms "For Any Reason"

Even customers with good habits can be hit with "gotchas"

By Martin H. Bosworth
ConsumerAffairs.com

July 28, 2008

• Credit Tips And Tricks • Get Control of What You Owe • No Easy Way Out Of Credit Card Debt • Penalty Fees, Interest Rate Hikes, and Misleading Contracts Await Credit Card Shoppers • "Convenience Checks" Carry a Heavy Price Tag • Understanding Credit • Credit Bureaus: Who You're Dealing With • Reading Your Credit Report • Credit Scoring: The Fickleness of FICO • Credit Knowledge: A Long, Hard, Struggle --- News • New Credit Card Rules Take Effect February 22 • Credit Card Direct Mail Back on the Rise • FTC Urged To Place Tighter Controls On 'Free' Credit Reports • Attorneys General Warn of 'Free' Credit Report Confusion • Retailers: Hidden Credit Card Fees Cost Jobs • Interchange Fees Fleecing Consumers, Retailers Say • Minnesota Sues Clinic For Credit Card Fraud • Retailers Applaud GAO Report On Interchange Fees • Schumer Moves to Clean Up Credit Reporting Ads --- • More about credit cards

If you use a credit card, a regular history of paying your bills on time and not running up high balances should net you a good payment history and good credit terms, right? Wrong. According to a new survey released by Consumer Action, certain bank practices can ensnare even good customers in a web of late fees, penalties, and higher interest rates.

Consumer Action's "2008 Credit Card Survey," released July 22, studied 22 card issuers and 41 different credit cards to compile its results. The survey's findings indicated that the top five card issuers--Bank of America, Chase, Citi, American Express and Capital One--"write themselves a blank check to change rates," said Consumer Action's Linda Sherry.

One of the major new reasons for interest rate changes was "market conditions," the survey found. Several of the banks surveyed cited the worsening economy and credit availability as justification for hiking rates or charging additional fees. "What this means to even the best customers is that a perfect payment history is not a safeguard," said Sherry.

"Consumers should not need a crystal ball when they enter a contract," Sherry said. "When cardholders accept the offered price they don't know how 'market conditions' will impact the cost of carrying a balance that they took on at a much lower interest rate."

Among the survey's findings:

• American Express, First Command, US Bank, Washington Mutual and Wells Fargo said that they would reduce cardholders' credit limits because of perceived customer risk, such as high balances on credit cards, late payments, or lower credit scores.

• Once a cardholder's interest rates are raised, it's often difficult to return to the original lower rate. A majority of issuers told Consumer Action that cardholders would have to contact the bank and ask for an account review to qualify for a lower rate, while many required six months to a year's worth of good payment history before considering a rate change.

• 87 percent of the card issuers surveyed included binding arbitration clauses in their card agreements as well. Five of the twenty-two lenders surveyed said that they permit cardholders to "opt out" of the binding arbitration provision of the cardholder agreement, but only within a specifc defined period of time.

• Many large financial institutions have begun using a practice termed "in-house universal default," where a customer who has multiple accounts with the same institution can be hit with a card rate increase if they bounce a check or miss a mortgage payment.

Tightening the screws

Members of Congress have introduced multiple pieces of legislation that would reform or restrict the more abusive practices of the credit card industry, from eliminating unwarranted interest rate hikes to enabling merchants to negotiate the price of credit card interchange fees.

The Federal Reserve has also opened public comment on its plans to reform lending agreements and procedures to prevent deceptive tactics. To date, the Fed has received over 30,000 comments from consumers on the issue, many of whom are asking for stronger rules.

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