Credit Card Follies
CREDIT CARD FOLLIES....What's a bank to do when its profits fall thanks to the subprime debacle and a slowdown in consumer borrowing? You guessed it:
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.The net result of this, of course, will be to scare the crap out of every credit card owner in the country, which will lead to even less consumer borrowing, which in turn will lead to even bigger problems for the banks. In other words, credit card issuers aren't just evil, they're stupid too. If Democrats in Congress had any guts at all (I know, I know), they would have long since introduced legislation to put an end to this and dared Republicans to vote against it. The campaign ads practically write themselves, don't they?...."They need to raise rates because they can't raise fees anymore," [David] Robertson said. "It's politically untenable."
Politics also seems to be behind a subtle shift in language that's appeared in the terms and conditions of several top card issuers. Increasingly, lawmakers have been taking a skeptical view of banks' long-standing insistence that they can raise people's rates at any time for any reason.
Citibank announced last year that it would no longer make this claim. Instead, the bank now says people's rates may rise because of "general market conditions." Similarly, Capital One introduced language last year asserting that cardholders' rates could go up "if market conditions change." More broadly, BofA declares that credit card rates could increase due to "market conditions, business strategies or for any reason." [Italics mine.]
...."The card issuers are moving from a risk-management strategy to a revenue-generating strategy," [Robertson] said. "Credit cards are consistently the most profitable retail banking product," Robertson observed. "The growth is not there anymore. And with a recession coming down the pike, there's no expectation of more spending by consumers. The industry needs to raise prices to keep profits where they need to be."