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May 2008
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With credit cards, a deal is not a deal
You'll never get a letter from your bank like this one, but the notices you've probably thrown away might already bind you to similar rules.
In February, Consumers Union found these terms in the cardholder disclosures in effect for Bank of America's Platinum Plus Visa Credit Card. The bank may also change a customer's interest rate "based on information in your credit report, market conditions, business strategies, or for any reason."
Bank of America isn't alone in reserving the right to jack up the interest rate on money already borrowed.
Chase's Perfect Platinum MasterCard and some of its Visa cards reserve the right to change the account terms (including the annual percentage rates) "at any time for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account."
The Discover More card doesn't have an "any time for any reason" clause, but it does generally reserve the right to change the terms, and one late payment could boost your rate as high as 28.99 percent (30.99 after May 1).
Some companies are giving their customers a bit of a break. Citigroup announced in March 2007 (just six days before a congressional hearing on credit-card practices) that it would stop using the "any time for any reason" policy and end universal default, which raises interest rates on one credit card because of activities such as paying another bill late. It's not all rosy, though; Citigroup still reserves the right to raise the rate as high as 28.99 percent on some cards if the cardholder misses a payment on any Citibank credit card.
TIGHTENING THE RULES
Consumers Union has called for Congress to rein in these practices and codify the principle that a deal is a deal. The law should guarantee that the interest rate or rate formula under which a consumer uses a credit card remains in effect until that balance is paid off. (Consumers have no chance to do that now if they keep using the card.)
Until Congress acts, you should:
Dear Credit Card User,
You owe us money. We can raise your interest rate just because we feel like it. We can do this even if you have always paid us on time and your credit is still good.
We gave you a zero percent interest rate to entice you to transfer a balance to us. Now that you have, we can raise your rate from zero to our standard rate or even higher, to our default rate, if you pay us late or go over your credit limit just one time.
You may have to get your payment to us 20 days from when we mail you the bill. Mail delays in either direction are your problem. If your payment is late even once, we can boost your interest rate to as high as 29.99 percent.
And you out there on the West Coast: Your electronic payment is late if you set it up after 2 p.m. Pacific time on the date it's due.
You owe us money. We can raise your interest rate just because we feel like it. We can do this even if you have always paid us on time and your credit is still good.
We gave you a zero percent interest rate to entice you to transfer a balance to us. Now that you have, we can raise your rate from zero to our standard rate or even higher, to our default rate, if you pay us late or go over your credit limit just one time.
You may have to get your payment to us 20 days from when we mail you the bill. Mail delays in either direction are your problem. If your payment is late even once, we can boost your interest rate to as high as 29.99 percent.
And you out there on the West Coast: Your electronic payment is late if you set it up after 2 p.m. Pacific time on the date it's due.
Sincerely,
Your Bank
Your Bank
You'll never get a letter from your bank like this one, but the notices you've probably thrown away might already bind you to similar rules.
In February, Consumers Union found these terms in the cardholder disclosures in effect for Bank of America's Platinum Plus Visa Credit Card. The bank may also change a customer's interest rate "based on information in your credit report, market conditions, business strategies, or for any reason."
Bank of America isn't alone in reserving the right to jack up the interest rate on money already borrowed.
Chase's Perfect Platinum MasterCard and some of its Visa cards reserve the right to change the account terms (including the annual percentage rates) "at any time for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account."
The Discover More card doesn't have an "any time for any reason" clause, but it does generally reserve the right to change the terms, and one late payment could boost your rate as high as 28.99 percent (30.99 after May 1).
Some companies are giving their customers a bit of a break. Citigroup announced in March 2007 (just six days before a congressional hearing on credit-card practices) that it would stop using the "any time for any reason" policy and end universal default, which raises interest rates on one credit card because of activities such as paying another bill late. It's not all rosy, though; Citigroup still reserves the right to raise the rate as high as 28.99 percent on some cards if the cardholder misses a payment on any Citibank credit card.
TIGHTENING THE RULES
Consumers Union has called for Congress to rein in these practices and codify the principle that a deal is a deal. The law should guarantee that the interest rate or rate formula under which a consumer uses a credit card remains in effect until that balance is paid off. (Consumers have no chance to do that now if they keep using the card.)
Until Congress acts, you should:
- Pay off as much of your credit-card balance as possible. Sending in just the minimum on a $5,000 balance means you'll still
be making those payments in 20 years.
- Stop adding new charges. U.S. consumers owe more than $800 billion on credit cards.
- Keep an eye out for a card whose interest rate or formula can't change after you start using it.
