David Lazarus–What rate cuts? Use of plastic gets pricier

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.”

Read it all.


Posted in * Economics, Politics, Economy

6 comments on “David Lazarus–What rate cuts? Use of plastic gets pricier

  1. Saint Dumb Ox says:

    Living within ones means really isn’t a novel concept. Being out of credit card debt myself (only after a generous gift) I will never have another card again. They are NOT necessary to life as check cards are a good substitute (I can’t spend beyond my means).

  2. Sick & Tired of Nuance says:

    We had a managable debt with Capital One last year. We went on an extended business trip in the Spring for a little more than a month. We had our mail forwarded, etc. When we got back home, we discovered that our Capital One bill was among the missing. We contacted them and paid it promptly. We were about 10 days late. This is after having the card for many years with a flawless record.

    We were told that everything was going to be alright and that it would not affect our credit rating.

    On our next statement, we discovered that they had raised our interest rate from 5.9% to 27.9%. We contacted the company to see if there had been some mistake. The response was that the new rate was correct. I was very angry and considered cashing some of our I-series savings bonds from our emergency fund and retiring the debt immediately. We could have done it, but after a few days to cool off, I decided on another course of action. We transferred the debt to their competitor. We payed a small fee for the transfer and the interest rate on the debt was now 6.9%, or one percent more than it had been originally. But, it was still 21% less than the predatory Capital One wanted us to pay. We switched to using our debit cards and the debt is on schedule to be retired in May. We did just have a setback because our beloved pet needed emergency treatment at a hospital [he is still there as we speak] but the debt will still be paid off on time.

    Capital One will NEVER again have my business and I will warn as many people as I can of how they do business. I do not oppose a company making an honest profit, but I am of the opinion that rates above 20% are usury. In point of fact, in my state of Connecticut, the usury limit for entities that are not banks or otherwise exempt is 12% annually. The Capital One credit card was trying to charge us more than double the rate that is usury. I think there needs to be a repeal of the usury exemption for these “entities”. I am of the impression that this cannot be resolved by state law, but must be resolved by the US Congress. State usury laws were bypassed by Federal law. The Truth in Lending law helps, but most people don’t know [or didn’t until a year or two ago] that credit cards can change rates at will and a late payment on an unrelated bill can affect all of your credit card interest rates, your ability to get auto insurance, and even reduce your ability to get a job.

    Credit cards are fine for emergencies or occasionally taking advantage of sales. They are also useful when buying durable goods like major appliances or paying for contractor services; because one can place a dispute of claim with them and not be left hanging in the wind if an appliance goes bad one day out of warranty or a contractor fails to fulfill an obligation.

    Other than that, we are quite content with our debit cards and will be from now on.

  3. Chris says:

    in my experience, the one thing you really need a credit card for is renting a car – other than that a debit card is fine.

  4. Clueless says:

    The trouble with debit cards is that they do not have the protections of credit cards. Not only are they easy to fake, but your entire balance can be removed, and the bank has no need to make good on this. By contrast, credit card losses max at 50 dollars.

    I personally have a single credit card which is kept in the strong box in my local bank. We use cash or checks for our needs, and we go in on Saturdays and get what we need for the week.

    Shari (who has had two debit cards forged in the past year).

  5. TWilson says:

    To take a slightly different angle, if you have enough discipline to pay-off a credit card balance monthly, you leave benefits on the table if you don’t use one. Most people can qualify for a card with no annual fee that also offers an associated reward, whether it’s airline miles, cash-back, gift cards, gas discounts, etc. There are also situations in which obtaining a store-specific card can be a good strategic move: for example, home improvement stores like Home Depot or Lowe’s often offer a flat discount off a purchase if you apply for and use their proprietary card. So if a major appliance breaks, save yourself some money. The same often applies to clothing stores – buying a new suit? Then crank up the discount. As times get tighter, finding ways to increase one’s effective income become more important.

  6. Little Cabbage says:

    #2 Sorry this happened to you. The credit card industry is one big rip-off, but until we have public funding of elections (with free TV ads limited to speeches by the leading candidates, as they do in the UK and Europe), we will be stuck. The swarmy truth is they are paying off the folks we elect to make the laws. We live in a shoddy era.

    And post 4 is correct re: the lack of protection on debit cards. Why do you think they are being pushed by the big banks? It ain’t to ‘help’ the poor customer!