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Latest Chase Controversy Part of a Pattern

Chase has a knack for infuriating its customers

By Jon Hood
ConsumerAffairs.com

June 28, 2009

Thousands of Chase credit card holders have been informed that their minimum payment is being raised from 2% to 5%. Chase blames the three-percent increase on the struggling economy.

Consumers affected by the increase all took advantage of a balance-transfer program that has already come under scrutiny in a number of lawsuits. In January, a class action lawsuit was filed in California on behalf of consumers who signed up for the Balance Transfer Program, which allows consumers to transfer outstanding debts to their new Chase credit cards. According to the suit, consumers were promised a fixed interest rate of between 2.99 and 4.99%.

In January, Chase began charging consumers a $10 “service fee” every month, and consumers who refused to pay found their interest rate raised to as high as 7.99%. Neither the service fee nor the interest rate increase was mentioned in the initial cardholder agreement.

In March, Chase reached an agreement with New York Attorney General Andrew Cuomo in which the company agreed to stop charging the $10 service fee targeted in the class action, and to refund over $4 million to affected consumers. According to the stipulation, over 300,000 consumers were affected nationwide.

Even loyal and conscientious Chase customers haven't been spared from increases that can prove devastating to their personal finances. Steve of Autryville, N.C., who saw his minimum payment go from 2% to 5%, writes, “I don't know what I'm going to do, I'm only on Social Security and barely making it. I thought Chase was a good company, but they say there's no way to get out of paying the 5% now. I never missed a payment for over 12 years with them. I don't know what to do now.”

“I have always paid more than the monthly minimum due and always on time,” writes J.W. of St. Charles, Missouri. “I have carried the card for over 10 years and used the 'fixed rate of 3.99% for the life of the balance transfer' to reduce my unsecured debt (caused by medical expenses) in half. I mistakenly thought that this was a good company giving the average consumer an opportunity to manage financial difficulties responsibly. FAT CHANCE.”

Another ruling

In case its reputation wasn't sufficiently tarnished, Chase lost another interest-related lawsuit last month. The Court of Appeals for the Ninth Circuit ruled that Chase must clearly disclose that it might raise interest rates based on a consumer's credit history or other risk-related factors. That suit was brought by a Portland, Ore. couple whose interest rate was raised from nine to 24 percent in April 2005.

The suit accused Chase of violating the Truth in Lending Act (TILA) by failing to explain which factors the company used when deciding to raise the interest rate. TILA requires explicit disclosures regarding the terms surrounding a loan agreement.

The majority opinion conceded that credit card companies must be able to adjust APR rates based on consumer risk, but said that Chase “buried” the provision governing rate changes “too deeply in the fine print.” Specifically, the court noted that the disclosure came “five dense pages after the disclosure of the APR.” The court said that lenders must “clearly and conspicuously” disclose the reasons for which they might change a consumer's interest rate.

While TILA has been a major force in the credit card industry since its 1968 inception, recent legislation seeks to better ensure that disclosures are prominent and easy to understand. The Credit Card Accountability, Responsibility and Disclosure Act, signed into law by President Obama in May, was developed largely as a reaction to the financial crisis brought on by loans and mortgages given to high-risk consumers.

The law only allows lenders to raise interest rates if a cardholder submits a payment at least 60 days late. Moreover, if the borrower pays on schedule for the next six months, the lender is required to return the loan to its original APR. Justine Fischer, an attorney for the Oregon couple who claimed victory last month, said that Chase's conduct would likely be prohibited under the new law.

Additional suits relating to the balance transfer program have been filed in several other states, including Oregon.

More: Read verbatim complaints by Chase customers.

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