The Sun-Sentinel has a story that I KNOW will resonate with some of my readers. The banks are out there getting their bailouts but credit-card customers are getting pounded with huge interest-rate hikes. In today's Sun-Sentinel reporter Mike Mayo spotlights a Washington Mutual credit-card customer who recently got slapped with a punitive rate of 31.99%. Ouch. The customer has never missed a payment, but he is nearly maxed out. You know the drill. Card company sees high utilization and reprices rates accordingly.
From the story:"I'm not looking for a clean slate, I'm just looking for a reasonable rate, 8 or 9 percent, so I can pay this down," Mandel said. "The prime rate's at 4 percent — they're still going to be making a profit."
He said he talked to a customer service representative and a supervisor and they both said: "Sorry, nothing we can do about it."
"I said, 'You know, you people are killing us,'" Mandel said. "'At this point in our nation's history, how can you be doing this?'"
Many of my readers have said the same thing. It makes no sense to lift rates to levels that will push the customer over the edge. And Washington Mutual can't do anything about it? Bull. It doesn't want to do anything about it. There's a difference.
You can read the rest of the story here (link).
Thursday, December 4, 2008
Billions For Banking Giants, 31.99% Interest For The Little Guy
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30 comments:
They are killing the middle class but, sadly, I think that's the hidden agenda.
Karen
I don't agree that they are trying to kill the middle class. I don't think in the long run they want people give up keeping up with the jones. They are weeding out people who may not be able to keep up with higher payments. CM if a person BKs do the banks get a bigger tax break vs a charge off?
Consumers are on the ropes, Karen. These kinds of moves are just the thing to push someone over the edge.
Would love to be a fly on the wall at any of these banks' offices.
RUA, I don't think the flavor of the write-off is any different. A loss is a loss is a loss. I don't know that definitively, but that's my most logical guess.
Default rates of 30%+ seem designed make some good money for the banks in the short term, while
inevitably pushing the customer over the edge and then having them written off as bad debt.
I realize that we're talking about unsecured credit here, but punitive rates of 30% and over should be outlawed.
I agree with Scott and CM that banks seem to be opting for the win-win situation: roll in the bailout while nabbing as much short-term money as they can with huge rates AND getting to write off any long term defaults.
I do not think Americans will give us credit cards any time soon, so if all the banks stay in cahoots rate-wise, they basically have the consumer by the jewels.
Just the bank's way of playing the "Heads, I win! Tails, you lose!" gambit to those playing close to the sidelines.
I just hope that the banks realize in time that this particular gambit comes back to bite them in the a$$ at the most inopportune time, just like the subprime lending gambit... Oh! Wait a second!
And let's not forget that there will be legislation coming that will rein in these business practices by credit-card companies. These companies are ratcheting up rates now ahead of that legislation.
That can't be discounted here.
Usury laws are coming back?
No. Not saying that. Just saying that the rapidity at which some of this stuff takes place would not occur.
Make no mistake about it, usury laws are dead in the states where the card companies reside.
Frontline ran a good piece a while back called "Secret History of the Credit Card."
CM, The program addresses your point.
"There is no federal limit on the interest rate a credit card company can charge.
If you've ever looked at the return address on your statement, you may notice your credit card issuer is located in a state such as South Dakota or Delaware. That's because these are the states that have either weak or no "usury laws" meaning there is no cap on the interest rate that is charged."
http://www.pbs.org/wgbh/pages/frontline/shows/credit/eight/
Video here..
http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/
From a story I wrote in September:
Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978). This landmark decision, published in 1978, held that Omaha Bank could charge customers in Minnesota the highest interest rate allowable by Nebraska law. What this meant is that a credit card company located in South Dakota, for example, could export the highest permissible interest rate allowed in South Dakota to locations across the United States.
http://www.creditmattersblog.com/2008/09/everything-you-ever-wanted-to-know.html
And I have highlighted that PBS video before as well. It's really excellent.
http://www.creditmattersblog.com/2008/09/weekend-roundup-sept-6-2008.html
Yeah, CM excellent indeed. It belongs on the "must-watch" list for your readers.
How was that for multitasking? I just wrote another story.
HSBC is exiting the affiliate marketing channel now. It joins Chase and Citibank.
http://www.creditmattersblog.com/2008/12/hsbc-joins-party-to-exit-affiliate.html
Haha. Not bad CM, not bad at all.
Let no one say you don't multitask well, CM
But let me tell you something. (shocked that I have an opinion on this?)
I think it is bullshit that card companies are pulling this. In this case, sure, he is nearly maxed out. Bad move. But what about in the millions (I'm sure) of cases with Citi where the customer did nothing wrong and is still seeing rate increases?
It is like screwing the taxpayer twice. Once with the bailout and again with the interest rates. Damnit I could just pull my freaking hair out!
Even though this guy is nearly maxed out, 31.99% is outrageous. GREED pure and simple. Wamu could make plenty of money on this guy at 20%. When you are in the 30% range, you're just a pig.
Oh of course it is just crazy. Hell 20% is crazy.
Just another reason why I will never carry a balance again. Glad I got off that treadmill. I love my credit cards but I dislike these card companies.
The bank expects him to default, so they want him to default sooner rather than later, so they can write his account off and use government bailout funds to offset the loss, while those funds are still available.
How's this for multitasking, I just applied and got approved for a $10k FNBO CC at the same time you re-informed me of a groundbreaking lawsuit involving them.
Well, at least the rewards look ok.
Clutch, when did I reinform you of the lawsuit?
Aren't these the people who just issued me a CC?
"Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978). "
I remembered this after you quoted it.
Or is FNBO not the same as First of Omaha Svc. Corp you speak of?
Didn't mean to hijack this thread
Ahh! Not sure if they are one and the same, Clutch. Not sure if First National Bank of Omaha is the same as First of Omaha. My guess is that they are not. But you never know with name changes and what not. Could be.
Oh, and no worries on the hijack. I posted that information in this thread, thus it is somewhat related.
So what is the alternative? Usury laws you say? Utter BS. Banks can afford to lend to me from 0%-4.99% (losing money) and yet rake in billions in profits because of people like this.
If we protect every cardholder from high interest at their most desperate hour, then the cost gets burdened on super prime non revolving customers. Is this fair in a free market economy?
A better solution would be to cap default rates to 25%. That way, the banks can still profit while lending at a loss to super prime customers, while at the same time offering a 5%+ discount to defaulting customers.
I think a win-win situation is out there. But lobbyists and partisn politics will probably never let that happen
I had to come back and post on this story. I remember reading it in December and wondering what was going to happen to my rates. I have a credit card through USBANK. It is a store branded visa card that I got to earn rewards for a particular store I shop, but it is a visa, not an instore only card.
Anyways. I got this card about 2 years ago and was hit with the default 31.99% rate right off the bat because I did a balance transfer and after the "fees", it put me over limit. I have never been late on this card, but I was over limit that once, and have suffered with the default rate ever since. Despite perfect payment history and good credit scores, I have been unable to get my rate dropped. I have wanted to roll the balance to a new card with 0% interest, but with the current climate, been hesitant too. This is the only card I have not paid down.
Anyways, I was scratching my head last month because my payment was 1/2 what it usually is. I didnt think much of it at the time, and then today it hit me! "CHECK YOUR INTEREST RATE!" I didnt check this before because banks lowering interest rates on their own is unheard of these days, right?
Well, nope! Guess what! My rate has dropped to 12% That is ALMOST 20%
less!!!!! I am completely and utterly in shock. Everything with this account has pretty much stayed the same. I havent really done anything different. I have no idea why the rate dropped by more than half, BUT, I am SO not complaining. Guess I will make this card more of a priority and pay it off completely and then start adding it back into my rotation. Amazing how a rate drop has changed my bitterness towards this card and USbank!
Rebekah, glad to hear it! A good story for once. haha. Too much doom and gloom around my blog, eh?
Congrats on the rate cut.
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