Ailing Banks Relying on Consumers to Come to Their Rescue
Consumers are hurting. Already battered by tightened access to credit, rising unemployment, and unaffordable mortgage payments, consumers are also contending with soaring credit card interest rates and fees.
To help offset their record losses, some of the nation’s largest lenders Capital One, Citibank, and HSBC are raising interest rates for millions of consumers with certain credit cards.
Capital One informed some of its borrowers that it is raising interest rates to 17.9 percent from 12.9 percent – a 5-percent increase – in order “to reflect the current risk environment,” says bank spokeswoman Pam Girardo. For consumers who owe $8,000 in credit card debt – the average debt amount an American household carries – the interest they would accrue on that credit card with the 17.9 percent interest rate, if they made no new charges on the card, would amount to $1,577 if they paid off the card in two years, or $3,260 if they paid off the card in four years.
JPMorgan Chase is tacking on a $120-a-year fee and is more than doubling the minimum payment – from 2 percent to 5 percent of the credit card balance – for hundreds of thousands of borrowers who have low fixed-interest rate cards. JPMorgan gave some of these borrowers a choice between accepting a higher interest rate of 7.9 percent on their promotional balance of 3.9 percent or making a higher minimum payment on top of the new monthly fee.
While the Federal Reserve and other bank regulators have approved new credit card regulations meant to protect consumers from interest-rate increases like these and other unfair credit card practices, the new rules aren’t scheduled to take effect until July 2010.
“We’re all going through an economic crisis right now, and we need reforms that will help consumers now,” says Bill Hardekopf, CEO of LowCards.com.
Sen. Charles Schumer, a member of the Banking, Housing, and Urban Affairs Committee, says the “type of tripwire pricing” lenders are engaging in “is predatory and must end.”
But Ken Clayton of the American Bankers Association cautions lawmakers that any additional crack down on banks could “send further chills in a market already in a deep freeze.”
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