Credit Card Execs On The Hot Seat

On Capitol Hill, Industry Leaders Defend Hiking Rates When Credit Scores Fall

(CBS/AP)  Credit card executives on Tuesday deflected congressional criticism of their practice of using falling credit scores to charge customers higher interest rates.

Industry critics say it's another example of abusive, confusing credit-card practices that can push consumers deeper into debt.

Sen. Carl Levin, D-Mich., chairman of a Senate Homeland Security and Governmental Affairs subcommittee, said customers who consistently pay on time are getting whacked by credit-card issuers that raise such rates without an adequate warning or a clear notice.

"The bottom line for me is this: when a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit-card issuer should have to do the same," he said Tuesday.

One purpose of today's hearing was to try to embarrass the companies into voluntarily changing their policies, reports CBS News correspondent Chip Reid. If they do not, some senators said they will try to change the law.

In part due to pressure from the Senate investigation, three big credit-card companies - Citibank, Chase and Capitol One - said they won't be raising interest rates for people who pay their bills on time, reports CBS News correspondent Bob Fuss.

But executives from Bank of America and Discover Financial Services told the subcommittee that a credit score is one of several factors in determining whether to increase a customer's interest rate.

"It's important criteria for how to manage risk and pricing," said Roger Hochschild, Discover's president and chief operating officer.

Bruce Hammonds, president of Bank of America Card Services, said his bank also considers customer behavior on an account and their debt to others, in addition to credit scores.

But it's the behavior of credit-card issuers that prompted several consumers to testify before Levin's subcommittee about not being informed when their rates were hiked.

Janet Hard of Freeland, Mich., said her Discover credit-card rate nearly tripled without adequate notice and that issuers send "deliberately misleading and confusing" information.

With Americans weighed down by some $900 billion in credit-card debt - an average $2,200 per household - practices of the very profitable industry have been ripe for scrutiny by the Democratic-controlled Congress.

Levin's subcommittee, which has been investigating the industry, looked at how credit-card issuers raise consumers' rates, to as high as 30 percent, when their so-called FICO credit scores decline - even if they've paid credit-card bills regularly and promptly. In many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores for reasons left unexplained, the subcommittee found.

In some cases, just opening another account, such as a department store credit card, could trigger the downgrade in credit score.

In one of the cases cited by the subcommittee, Marjorie Hancock of Arlington, Mass., wound up with interest rates on her four Bank of America credit cards of 8 percent, 14 percent, 19 percent and 27 percent, even though her credit risk is the same for all four.

Ken Clayton, managing director of card policy for the American Bankers Association, which represents the banking industry, said Monday: "Costs for nearly every product can change, be it because consumer's risk profiles change or because underlying costs change. Credit cards are no different."

Five big financial companies - Discover, Bank of America., Citigroup Inc., JPMorgan Chase & Co. and Capital One Financial Corp. - issue around 80 percent of U.S. credit cards, according to the subcommittee. A Capital One official also testified at Tuesday's hearing.

Citigroup, Chase and Capital One said they will discontinue the practice; Citigroup's change already is in place and Chase's will take effect in March. But Levin says legislation may still be needed to get other companies to do the same.

Larry DiRita, a spokesman for Bank of America, said its customers "have the right to say 'no' to an increase."

[enriquecaliente]

This is nothing, but a dog and pony show. Smoke and mirrors. Who do you think the government is in bed with....? You got it, the banks. There was a time that you could write off the interest rate on your card just like you do your home mortgage, but the government put a halt to that, why.? Bottom line, the banks and government want and need slaves. And guess how they put chains on you.?

[logicanada]

Want to know how and why banks and credit card co.s fix things in their favor?

Youtube; Corrupt Banking System- How Money is Created.
10 part series.

[kitone--2008]

I signed up for CARECREDIT at my vet''s recommendation when my pet suddenly became ill and needed surgery (nearly 6K). I was told I would have 12 months interest free to pay off the card. After 3 months I had all but 350.00 paid off. My bill suddenly included an erroneous interest ( should have been interest free for 9 more month) - for nearly 100.00! Yep. I was charged over 90.00 interest - erroneously yet - for my 350.00 balance. They said it was retroactive on the amount I had already paid off. Then they told me to go to the vet''s office to clear up the card terms. Then the vets office claimed the card was not like other cards (no kidding, they should have told me that in the first place). Terms are keyed in with each vet bill, and do not follow the card. They ultimately fixed the interest charge, but only after I paid the 350.00 in full that same day. I vowed to never use the card again. Consumers should beware of "CARE CREDIT"

[johnnye6]

"There''s no question that this is a time when corporations have taken over the basic process of governing." according to John Kenneth Galbraith on NPR shortly before he died.

[bobms111]

I WAS FACED WITH THE SAME SITUATION USING A CAPITAL ONE CREDIT CARD. i WAS NEVER LATE WITH A PAYMENT BUT i DID RING UP DEBT FROM A POOR BUSINESS DEAL WHICH WAS OBVIOUSLY REFLECTED IN MY CREDIT SCORE. MY INTEREST RATE WAS 7.9% AND OUT OF THE BLUE CAP ONE SENT ME A NOTICE THAT MY NEW RATE WOULD BE 23% i BELIEVE. MY OPTION WAS TO CLOSE THE ACCOUNT AND CONTINUE TO PAY AT THE 7.9% RATE WHICH I HAVE CONTRINUED TO DO ON TIME.
cAP ONE DID THREATEN HOWEVER THAT IF I WAS EVER LATE WITH A PAYMENT THEY WOULD RAISE THE RATE TO 23%. i AM SURE THE BANKERS ARE LICKING THEIR CHOPS WAITING FOR ME TO MAKE A PAYMENT LATE.

[walt1944-2009]

Anyone who has ever watched a "Star Trek" episode, knows who the Ferengi are. For those who haven''t, the Ferengi were a race of creatures whose only existence in life was profit, profit, PROFIT!!! They never gave anything away (charity was NOT in their nature unless their a handsome return on it) and their "Bible" was a book of laws called the "Rules of Acquisition", which listed rules on how a "good" Ferengi could be a shrewd business and especially a PROFITABLE one!

Once again, Gene Rodenberry got it right!

Sounds a lot like the political system and corporate America to me! This nation has become a nation of GREED and PROFIT at ANYONE''S expense just like the Roman Empire; and you can bet this country is going to end up just like the Roman Empire did!

SIG HEIL, BUSH!!!

[forthepeopl1]

can anyone tell me what bushes rate is on our countries credic card that he has spent up to 9 trillion dollars??????

[johnnye6]

I got one of those American Airline Citibank credit cards so I could build up frequent flyer miles. Right before I took my extended trip to Europe they added on a new foreign-exchange fee of 3%. So now any miles I earn by using it are offset by that fee so it''s not worth it anymore.

[darkstar864]

The whole thing is a scam! Bank One did this to me a couple of years ago. My credit score at the time was around 750 and they decided to raise my inerest to close to 20%! I started out with 0% mind you. I called to complain and they said I was carrying too much debt. After reminding them that I had been paying them THREE weeks early every month (and more than the minimum)... the rep became nasty and when I said to close my account, they couldn''t have cared less!! I am sticking with my Key Bank credit card. After 10 years, they have yet to play any such games.

[hkihega]

Oh yea, one more thing...FICO is not there for you it''s there for the Corporations! Proof is paying on time regardless of how much debt you have, your interest can still skyrocket! FICO is a joke.

[wwudiver]

..but Mein Fuhrer,I was just following orders. You are guilty by complacency. There is a solution here, someone can stop these guys. You are guilty by complacency. www.ronpaul2008.com Take responsibility for your government, force them to stop pandering to big business, make them pander to you.


"Hey, when you guys call the credit card company, please remember that the people you talk to are subject to the same rules you are and they are not responsible for creating them. Also, they happen to know a whole lot about the credit cards and can give you useful information about your account. So please don''''t blame them."

[hkihega]

Credit (too much) was and is the worst thing to happen to the American Consumer...listen to Tony Benn " people in debt become hopeless and hopeless people don%u2019t vote. See they always say %u2026 that everyone should vote., but I think if the poor in Britain or the United States turned out and voted for people who represented their interests it would be a real Democratic revolution. So they don%u2019t want it to happen. So keeping people hopeless and pessimistic %u2026 See, I think there are two ways in which people are controlled. First of all frighten people and secondly demoralize them...

The top 1% of the world%u2019s population own 80% of the world%u2019s wealth. It%u2019s incredible that people put up with it. But, they%u2019re poor, they%u2019re demoralized, they%u2019re frightened, and therefore they think perhaps the safest thing to do is take orders and hope for the best."

[element51]

Adding to my previous post....I do realize that there are sometimes circumstances that require the use of credit and it always seems to happen at the most inopertune times. It is also true that the last 7 years have brought changes in the law that heavily favor big business and banks. Congress must take steps to protect the consumer and let''s hope they do but don''t hold your breath. One other thing, there are honest credit counseling services out there who can help you. Check them out.

[element51]

A few years ago I started listening to a guy named Dave Ramsey on the radio. He has a call in show to help people take control of their financial lives. One of his strongest points was that you have to get rid of the credit cards. He also advocates paying off your mortgage as soon as you can and to not finance cars or boats. As I listened to him I began to see how wrong I had been and decided to take his advice. It took some time and it was not easy to learn to say "NO" but I stuck with it. Got rid of the cards, sold the cars and bought used ones for cash, and attacked the mortgage. As of now I have no credit card debt, no car payments and no mortgage. If I can do it anyone can. Think about it folks and try to find Dave on the radio. You''ll be glad you did.

[johnnye6]

Doesn''t the Bible say that usury is a sin? What are those self-righteous Bible-thumpers who run the Republican Party doing about this?

That''s why the Mafia is in decline. Loan-sharking, gambling, and gun-running are legal now.

[kemal00]

Hey, when you guys call the credit card company, please remember that the people you talk to are subject to the same rules you are and they are not responsible for creating them. Also, they happen to know a whole lot about the credit cards and can give you useful information about your account. So please don''t blame them.

[citizenusa-2009]

FINALLY! After years of loan sharking, the credit card companies are being brought to task. Yes, I know the big wigs had to make their money before congress finally decided to act IN FAVOR of the tax paying, and more importantly VOTING citizen. It''s almost hard to believe that any part of our "government" is acting in the best interests of the people!!

See: PUCO (takes money from you and from big utilities..just who are THEY representing????)

[steeepe]

Banks are involved in legalized usury, thanks to a Congress that kowtows to corporate interests at the expense of citizens. Do credit card companies lower rates when scores improve? I doubt it. They raise rates on customers who can least afford the increases. Why don''t they have higher rates on good risks, who use more of the bank''s money? They intentionally increase risk by increasing rates, which pull in more overlimit and late fees. Congress should cap rates at a reasonable level. Banks don''t lose money on credit cards. They have record profits. They lose money on crappy mortgage loans and then want to recoup by hitting their other customers.

[wwudiver]

These weasily b*strads would look more interested if they were standing in front a firing squad. They should be.

[mrmazerati]

Perhaps this could become a marketable point of difference for credit card companies. A TV spot which promises no raise in rate for on-time pay would result in a lot of switching.