Credit-Card Users Face Higher Fees, Rates

The Wall Street Journal has a nice story out today detailing many of the things I've been highlighting at CreditMattersBlog.com during the past month. Despite the Federal Reserve's attempt to stimulate the economy with lower interest rates, and despite the fact that the prime rate has continued to drift lower, credit-card customers have not benefited. Indeed, instead of enjoying lower rates on credit cards, many customers have actually seen their rates climb substantially.

Customers from American Express, Citibank, Nordstrom and elsewhere have seen their rates climb, even when some of their customers have performed flawlessly. Indeed, Nordstrom's recent hike was directed toward every one of its 2 million customers. What's more, customers cannot opt out of the rate increase (story link here). Ditto American Express, which is raising rates by an average of two to three percentage points (link to comments section) on some of its customers -- and not offering an opt-out provision, either.

Citibank, meanwhile, is allowing customers to reject its latest rate increase, but cardholders will ultimately see their cards get closed (story link here) if they decide not to accept the rate change. Take a look at the comments section of the story I did on Citibank. Pay special attention to some of the profiles that my readers sport. One of my readers posted this late last night: "The increase will take my purchase APR to 14.99%. My FICO score is 740 and I have never had a late payment to a creditor in the 17 years I've had credit," this person writes. "I have carried a balance on this card in the past but I just paid this card off last month. I have 3 other credit cards with APR's under 10%, so Citi will be the last card I use now (if at all)."

Citibank is supposedly raising rates on less than 20% of its customers. I have a question, though: if Citibank is raising rates on a reader with a 740 FICO score and a flawless payment history, who is safe? Let's just say that I'm beginning to wonder how accurate that 20% figure really is.

Even when card companies aren't lifting interest rates on their customers, they're busy finding other ways to ding them. Earlier this month, for example, I highlighted Discover's new balance-transfer-fee policy, which removes the fee caps that used to be in place (story link here). Chase is getting in on the act as well, implementing monthly service fees and higher minimums on customers who have not paid their outstanding balances down quickly enough (story link here).

In the meantime, this comes from the Wall Street Journal story:

Retailers are also getting stingier with credit. Home Depot Inc. reduced credit lines on its in-store cards, which are issued by Citibank, for customers with delinquent accounts or those whose credit scores have dropped dramatically. Nordstrom Inc. began notifying customers that it was raising interest rates on its store credit cards, while Target Corp., which has also raised interest rates and late fees, is issuing fewer cards and reducing spending limits as customer delinquencies have jumped sharply.

Many big banks reported weak credit-card results for the third quarter, with "charge-offs" -- reflecting loans considered to be uncollectible -- rising to over 5% of total credit-card balances and poised to deteriorate further.

"Some credit-card issuers are desperately looking to recoup their charge-off losses by increasing interest rates or hiking punitive fees," says Gwenn Bezard, a research director at Aite Group LLC, a research firm. "Those rates or fee increases can affect consumers that are perfectly good customers."

Card issuers cite the current economic turmoil to explain the changes. "Obviously, this is something we're doing to reflect the cost of doing business," says Desiree Fish, an American Express spokeswoman.

That's just a taste of the story. Mary Pilon and Jane Kim, the reporters who worked the story, do a terrific job of putting the rate and fee hikes into perspective. Indeed, the reporters (with a little help from Ann Zimmerman) give the story a nice scorecard feel to it. At the end of the story, in fact, there's a nice table summarizing the various moves that credit-card companies are making.

You can read the entire story here (link).

Related Articles:

Sign Of The Times: Nordstrom Bank To Lift Interest Rates On Its Credit and Store Cards

Citibank To Raise Interest Rates On Its Plastic

Change of Terms in Your Credit Card Agreement -- How Do You Reject The New Terms?

Discover Joins The Crowd: Unlimited Fees For Balance Transfers