NEW YORK, May 19, 2009
Exploiting The Credit Card Law Loophole
Card Issuers May Hike Charges And Interest Rates Before New Regulations Take Effect; Borrowers Who Pay In Full Targeted
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Play CBS Video Video Notebook: Credit Card Fees Kelly Wallace discusses hidden credit card fees which are becoming increasingly prevalent as a result of the recession.
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Video Credit Card Debt Epidemic Millions of Americans have soaring levels of credit card debt. Nancy Cordes reports that U.S. lawmakers are now pushing for legislation and reform relating to interest rates and regulations.
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Video White House On Credit Cards Banks will likely resist congressional passage of a bill President Obama wants to expedite, a bill calling for cut backs on credit card fees, reports Bill Plante.
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(CBS/AP)
That's a nine-month loophole, and as CBS News business correspondent Anthony Mason reports, consumer groups are concerned the credit card companies will use the time to hike up interest rates and fees while they can.
At a credit counseling center in Dallas, calls for help are up 40 percent over a year ago. Many come from borrowers buried in credit card debt.
"It's amazing how much of the debt is actually fees and interest instead of principal," said Todd Mark of the Consumer Credit Counseling Service of Greater Dallas.
Comedians may joke about the banks - Stephen Colbert said this week that the card companies "simply change their rules and interest rates based on what the credit rule monkey spins on his rule randomizing wheel" - but they're not laughing on Capitol Hill anymore.
"They will go kicking and screaming into the night on this one," said Adam Levin of Credit.com.
Levin warns that lenders will use the nine months before the law in enacted to raise interest rates and hike fees.
During that time, he said, "We could face the continuing reign of terror."
Interest and fees are lenders' primary sources of profits. So to make up for lost revenue, credit card companies may now have to go after the 45 percent of borrowers who pay their bills on time.
Among the possibilities:
At the same time, lenders are making it tougher to borrow. Nearly 60 percent of banks say they've tightened credit card lending standards this year. That means less money for borrowers squeezed by the recession.
"And we still face the fact that Americans are debt-ridden and that Americans have to focus on developing a serious plan personally to reduce their debt. Because this is not going to solve that problem," Levin said.
Americans still owe $945 billion in "revolving" debt - most of it on credit cards. But that's down from $980 billion six months ago.
Tighter lending standards may be one reason. Another: Americans finally may be starting to pay down their credit card bills.
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See all 146 Commentsto see if they can help. I am glad I did read it before I talk to my CC company and it helped - Jane Jim, California
When the credit card oligarchs lose our identity, we their customers are held responsible for any resulting inconvenience or worse. The credit card companies are loan sharks who have been given a legal pass by their benefactors in Congress. Now they get a 9 month reprieve to figure out ways to screw consumers.
I can't speak for others, but I use a credit card for the rewards and I pay it off in full every month. The credit card companies call such people "deadbeats" yet they still make lots of money because of the fees on cash flow from vendors. They are use to receiving 35% interest. The moment they attempt to add fees to my credit card or charge interest will be the day I destroy the cards.
http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/
Posted by 12345-908903 at 1:13 PM : May 20, 2009,
Great post. Normally I would report it all, but I need some room to comment.
It would benefit us all if we could organize and get everyone who is able to cut up their credit cards and use checks or pay with cash as a protest to the law. The panic it would cause would be worth it since meaningful reforms would follow.
Has anyone noticed the 25% increase in gas prices right in time for the holiday weekend? I would guess its big money and greed wanted to cash in on our travel.
Perhaps a holiday strike where everyone stays hope is in order. The hedge fund managers who are creating this price spike with our bailout money would loose their tail if everyone decided to stay home this weekend.
Pass this idea on and lets put a litttle instability in oil futures. If anything it would keep the gas prices lower.
Card companies and the American Banking Association are in the business of loan sharking. They will find a way around any law that is passed in favor of the consumer. You may have too many cards, or too few cards, carry no balance, or carry a too small or too large balance, pay on time, never default, and never universal default. It doesn't matter. They will screw you by tacking on charges, raising your interest rate, or by lowering your credit card limits, resulting in a lower credit score. Once they have successfully lowered your credit score, you become a greater loan risk and they can then charge a higher interest rate and tack on other "risk" charges. They long ago rejected the idea of simply not lending money to people they consider a risk in favor of making much more money by pegging all their customers a risk and charging them higher rates and fees. They have ways of putting it to us that we haven't even dreamed of yet.
"Interest and fees are lenders' primary sources of profits. So to make up for lost revenue, credit card companies may now have to go after the 45 percent of borrowers who pay their bills on time.
Among the possibilities:
# Reviving annual fees
# Charging interest immediately on purchases instead of offering grace periods
# Eliminating rewards programs"
Merchants pay the equivalent of up to 36% APR for the privilege of accepting the credit card.
A very large percentage of Credit Card Customer, like myself, never pay interest on purchases on credit cards. I will simply stop using any of my cards which eliminate the grace period.
The only loser will be the bank that does away with grace periods.
Most consumers refuse credit card offers with annual fees.
Rewards programs are intended to lure new customers to use those cards over competitors.
Any of these changes would cost the bank more than it makes them - not likely to be implemented.
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