Hundreds of thousands of Capital One and Bank of America cardholders have been notified in recent months that their interest rates are going up — in some cases to as much as 28% — even though they haven’t been missing payments.
Cardholders are being told they can “opt out” from the higher rates by paying off their balances and taking their business elsewhere. But that’s not really an option for people who may not have thousands of dollars in spare cash sitting in a drawer.
If anything, people’s credit card rates should be heading south following repeated cuts in interest rates at the federal level. So far this year, the federal funds rate has been reduced by 1.25 percentage points and now stands at 3%. Further cuts are expected as the economy slides toward recession.
The Fed funds rate is an overnight lending that banks charge to each other. It influences the interest consumers pay for credit cards, home equity lines and car loans.
David Robertson, publisher of an influential credit card trade publication called the Nilson Report, said a number of factors determine rates for plastic, not least the greater risk of delinquencies these days resulting from the credit crunch.
But he said it seems clear that leading banks, having suffered billions of dollars in losses from the mortgage meltdown, are casting about for new sources of revenue.
“They need to raise rates because they can’t raise fees anymore,” Robertson said. “It’s politically untenable.”