One more reason I only carry a 'debit card.' Scarry Stuff! [Archive] - Fly Fishing Forum

: One more reason I only carry a 'debit card.' Scarry Stuff!


fredaevans
05-29-2003, 10:52 AM
NYTimes.com Article: Surprise Jumps in Credit Rates Bring Scrutiny


Surprise Jumps in Credit Rates Bring Scrutiny

May 29, 2003
By JENNIFER BAYOT

The toughest diagnosis that Matthew Hajzl made last month
was on his credit card statement.

A doctor in Batavia, Ill., he discovered that the interest
rate on his MasterCard had nearly tripled, to 16.99 percent
from 6.2 percent. Dr. Hajzl asked the card issuer why,
noting that he had always paid on time and kept within his
credit limit.

The issuer, Bank One, replied that his creditworthiness had
somehow changed and that it reserved the right to raise his
rate accordingly. The culprit, Dr. Hajzl realized, was the
mortgage on his new house.

A provision now built into most card agreements allows the
companies to reset anyone's interest rate based on the size
and status of other debts. And improvements in information
technology and a change in federal law have spurred card
companies in the last couple of years to check their
customers' data regularly, not only when they review
applications or notice missed payments.

Concerned that consumers have not been adequately informed
about the practice and that the sharp jumps in rates may be
unreasonable, some federal and state legislators are
proposing limits.

"Such practices increase the cycle of indebtedness, poison
customer relations and spur bankruptcies that hurt
borrowers and creditors," said Representative Carolyn B.
Maloney, Democrat of New York.

Congress needs to decide by the end of the year whether to
reaffirm a crucial section of the federal law governing the
use of personal credit reports by lenders. Some lawmakers
would like to give states more power to restrict rate
changes, and others want to limit how companies can use a
person's credit information. Hearings began this month and
are to continue this summer.

Ms. Maloney and another member of Congress, Representative
Bernard Sanders of Vermont, say they each plan to introduce
legislation restricting rate increases.

A few states, including California and New York, are also
considering measures that would limit lenders' access to
credit information or require additional disclosure before
they could change someone's rate.

Card companies say they are taking prudent action to
increase the rates of cardholders who show signs of
financial strain. They still look mainly at customers'
payment records with them, they say, but add that the
sophistication of today's credit reports - consumer
profiles that incorporate data from several lenders - also
allows them to change rates based on other factors.

So if someone misses payments on an American Express card,
the interest rate on his or her Citibank card balance may
jump. To a lesser extent, taking out a car loan or
mortgage, or applying for other credit cards, can set off a
rate increase because a new loan can stretch a borrower's
ability to repay debts.

Three out of four card companies now use credit reports to
reconsider cardholders' revolving interest rates, industry
experts said. Those who do include some of the biggest card
issuers, like J. P. Morgan Chase, American Express, MBNA
and Capital One. And the card companies say they are
checking on their customers more often, sometimes every
month.

"It's an industry standard now," said Robert Hammer,
chairman of R. K. Hammer Investment Bankers, a consulting
firm in Thousand Oaks, Calif., whose clients include 15 of
the 20 biggest card-issuing banks.

While each credit card issuer decides which factors warrant
a rate change, virtually all companies keep tabs on a
cardholder's credit score, the single number calculated to
represent the information in a credit report. The score
ranges from 300 to 850, with higher numbers designating
more creditworthiness.

That may alert them to customers like Jim Voyles of Chico,
Calif. Mr. Voyles, 40, acknowledges that he has made late
payments and pushed the spending limits on some of his
credit cards over the last few years.

Still, when Providian Financial last year raised his
interest rate to 29.99 percent from 19.99 percent based on
a low credit score, he considered the size of the increase
excessive, especially given his clean record with
Providian.

"Out of all my credit cards, Providian was one that I never
was late for," he said. "Now, I am in bankruptcy, because -
29 percent? Would you pay 29 percent?"

Providian declined to comment on Mr. Voyles's account. Like
other card issuers, it said that raising rates was a way to
compensate for the money it would probably lose to
customers with weakening credit.

Many card companies note that auto insurers raise the rates
of drivers cited for speeding because those drivers are
deemed more likely to have accidents and require big
payouts.

Similarly, customers with black marks on other credit cards
are more likely to default, card companies said, and should
pay more. "We have to price for the risk that we take,"
said Alan Elias, a spokesman for Providian, based in San
Francisco. "If a customer is maxing out their credit cards
with other lenders or showing other signs of overreaching,
the risk models tell you that it's only a matter of time
before that's going to impact you as a company."

Mr. Elias added that Providian had recently lowered the
rates of thousands of customers who maintained spotless
credit records.

Bank One, Dr. Hajzl's card company, said that card issuers
were tweaking interest rates more regularly because they
had become better at customizing rates to reflect a
customer's creditworthiness.

While Bank One declined to comment on individual clients,
it said that when reviewing a cardholder's other debts,
which it does every month, it looked primarily at the
appetite for credit. "That is an indication of the future,"
said Ronald Robine, an executive vice president of Bank One
Card Services.

Critics argue that the card companies' pricing policy is
inadequately disclosed and often punishes cardholders for
minor lapses. The practices receive only brief and vague
mention in the agreements sent with new cards, they said.
Although card issuers say they alert customers before
imposing higher rates, the cardholders interviewed for this
article said they received no advance notice.

These cardholders also questioned the logic of resetting
their rates, saying it only put them further into debt.
"What is that going to solve? Besides me paying them more
interest? Or push me into bankruptcy?" said a 33-year-old
financial adviser from New York, who asked that his name be
withheld because he thought that divulging his credit
troubles would hurt his business.

He said the interest rate on his Bank One card shot up to
25.99 percent from 13.99 percent earlier this year, after
he applied for new credit cards. "My debt hasn't been
increasing," he said, adding, "But they assumed I was a
bigger risk based on a mathematical model, I guess."

Many consumers say they are confused over the card
companies' criteria. Charlene Marden, of Laconia, N.H.,
said the rate on her GM Visa card rose in March to 23.99
percent from 13.99 percent because she had enrolled in a
program to manage her debts. Since last July, Ms. Marden, a
single mother supporting two teenage children, has sent
monthly payments to a credit service that in turn pays six
creditors on her behalf. She said she would have juggled
the payments herself if she had known the move would make
her seem riskier and lead to a rate increase.

"I haven't missed any payments," said Ms. Marden, 44, a
nursing home aide. "I haven't been late - ever. This
doesn't make any sense." HSBC, which is acquiring the
company that issued Ms. Marden's card, said it could not
comment on individual customers.

The companies' reliance on credit reports also worries
consumer groups because the reports can be inaccurate. Last
year, the Consumer Federation of America analyzed half a
million consumer credit profiles and found significant
discrepancies in how different reporting agencies scored a
third of them.

The card industry's use of credit reports is under review
because a crucial provision of the Fair Credit Reporting
Act expires this year. Since 1996, the provision has barred
states from enacting tougher versions of the federal law,
and Congress's deliberations on whether to make this
provision permanent could open another important section to
revision, legislative advisers said. This other section,
also written in 1996, allows card issuers to review their
customers' accounts regularly.

The card industry says the existing law has made credit
accessible to more people, and lenders have begun
advertising and lobbying campaigns to preserve it. Alan
Greenspan, the Federal Reserve chairman, has testified in
favor of it.

Consumer advocates concede that lenders should be allowed
to see how their customers manage other debts, but they
argue that some card companies are abusing that by sharply
raising rates.

"This really is an outrageous gimmick to jack card
companies' profits up," said Representative Sanders, an
Independent and the ranking minority member of the House
subcommittee holding hearings to review the law. "Certainly
this is an issue that I and other pro-consumer members of
Congress are raising."

He added, "What you want for the Fair Credit Reporting Act
is strong national protection.'

Mr. Sanders, like Ms. Maloney, is drafting a bill to
prohibit card companies from considering information from
other lenders when resetting their rates.

In addition, states are considering privacy measures that
could restrict card companies' access to their customers'
credit reports. Proposed legislation in New York seeks to
give consumers more control over their credit reports and
would require the lenders to warn their customers before
taking adverse action. A bill in California would penalize
any lender that provided inaccurate information to the
agencies that compile credit reports.

Supporters say such regulations would make it much harder
for card companies to raise rates based on their customers'
other debts.

In many states, cardholders who experience unexpected rate
increases can close accounts and pay off their balances at
the original rates.

Whatever the law, consumer advocates said that the card
companies' approach means that consumers will have to know
their credit scores and keep track of their credit reports.


"And I'm not sure everybody's prepared to do it," said
Linda Sherry, a spokeswoman for Consumer Action, a San
Francisco education and advocacy group. "It takes some
understanding. There's just a total re-education needed
here for people."

Earlier this month, at a lunch in San Mateo, Calif., for
retired public employees, Ms. Sherry asked, "How many
people know what they weigh?"

All 100 or so in attendance raised their hands.

"How many
people know their credit score?"

Not one.

flytyer
05-30-2003, 01:19 AM
Fred,

Just last week I had one of the men who works under me tell me that his credit card rate went from 13.99% to 29.99% siimply because his wife needed to have a dental bridge replaced and the dentist had them use a dental credit service to carry the $1500.00 ballance after their dental insurance paid 1/2 of the bill. Needless to say, he was rather shocked and angry. His credit card company, Bank One.

NrthFrk16
05-30-2003, 01:39 AM
Banks are the Devil's spawn.

As of tomorrow...Keybank (sorry Fred) is going to hear it from me as is Washington Mutual (who I switched because I was beyond fed up with Keybank). :mad:

Steelheader69
05-30-2003, 03:40 AM
It's surprising what happens to your credit and marks made from simple things. Like running your social security #. Having your credit checked. Bang bang bang on your credit profile. Even if it's for something good, it still hits your scoring.

I know on my end. I had PERFECT credit before I got married. My ex drove my credit so bad thanks to her sqaundering $$$ that I had a hard time getting a line of credit for $500 (I had a $5,000 LOC without so much as flinching prior to my wife). I thought I had been doing good. Bills on time last 4 years. BUT....too many checks on my credit. I was even being checked by my INSURANCE COMPANIES!!!!! I was sent a "change of premium" because I was a high risk because of checks on my credit and credit score (they weren't helping any). It's crazy. They had NEVER EVER been paid late, yet I was getting dinged with higher costs because they checked my credit rating.

It sucks. I have NO credit cards. But, trying to get my credit score back up. Everytime I do, someone else drops dang thing down. It's a viscious circle. If it wasn't for getting my kids out of my marriage, the whole thing was a wash. SHEESH.

removed_by_request
05-30-2003, 09:56 AM
One thing that also hurt us was when the U.S. Gov. in the 80's took away the deduction for interest on Credit cards and cars. All you have now is your home to deduct.

Imaging if you could deduct 20% interest on 5k each year... man did we get shafted.

fredaevans
05-30-2003, 02:32 PM
You probably wouldn't be surprised to find out the number of folks who check your credit before extending credit, rentals, insurance, etc.

What came as a surprise to me is the follow up credit checking even if the account is being 'paid as agreed.' Times past, credit was checked if you requested credit or were in a collection situation (delinquent). Not any more; auto/home owner/life insurance count on your credit being checked.

For mortgages, you'd better have at least a 620, or better, or your screwed, blued and tattooed. Many residential loan programs (stated income/assets) require a credit score of at least 680 to 720 as a base requirement. Weeds out the riff-raff.
fae

willmullis
05-30-2003, 04:03 PM
Gotta agree with fredaevans. Why pay even more for whatever your buying by putting it on a credit card. We could have twice as much fly fishing equipment if it wasn't for all the interest we have paid over the years. I have slowly adopted a policy that if I can't cover it in the bank account then it will just have to wait. It has really helped those "impulse" buys. Sure we all should have an "emergency" card as long as that is what it is used for.

fredaevans
05-30-2003, 04:47 PM
With the typical credit card interest rate, if you make just the 'minimum payment,' it will take you just short of 20 years to pay off the balance.

Buy a home instead! At least you'll have someplace to come in out of the rain.
fae

BobK
05-30-2003, 06:25 PM
Spoken like a true banker, Fred!:devil: :hehe: :hehe:

BobK

DEERHAAWK
05-30-2003, 10:45 PM
Fred,
Dude you are cookin, and a BIG AMEN to NrthFrk 16, Banks are without question, the Devil's Spawn. I went strictly cash a while back, one of the best things I ever did!
A word to the young folks out there, cause I know they target you, DON'T!!!!!
Class dismissed.
Deerhawk

fredaevans
05-31-2003, 04:38 AM
North Dakota, Oregon and one other state? It's because these states don't have 'usuary laws' which limit the interest rate you can charge a 'customer.' Sky's the limit!
fae

BobK
05-31-2003, 07:45 AM
I remember being taught in elementary school that the MAXIMUM interest rate (by law) was SIX PERCENT! I guess "deregulation" took care of that. BTW, remember how Cable TV rates were supposed to fall after that "deregulation"? At least, that's what the politicians told us. Only thing that dropped was program selection! The RATES went UP!

BobK

removed_by_request
05-31-2003, 07:50 AM
Two things you will never find in this world; an honest politician and lawyer.

Both of which have our best interest in mind. (right)

fredaevans
05-31-2003, 01:10 PM
at one time. But in the 70's when interest rates went through the roof (home mortgages actually peeked out at about 20% .. no kidding) a lot of States with usuary rates at 12% (very common) and down found that home lending/buying ground to a halt.

Some states 'cured' this by exempting home loans and left their base interest rates at the State statutory rate. Bank card folks got around this by moving their operations to non-usuary states. Held up in court that they could charge what they wanted, where they wanted due to inter-state commerace regulations.

So much for your history lesson today.
fae

flytyer
05-31-2003, 08:24 PM
Fred,

And then the policticians in the non-usuary states found that when banks moved their credit card "operations" to their states it meant a large increase in income tax revenue. And they do not want to reduce that flow of moner to their state coffers. And as interest rates have gone down to the current low rates, banks and credit card companies have found they have a cash cow from the high (actually usuary level) interest rates in the non-unuary states.

I personally find it obscene that any state allows a bank to charge over 12% for credit card interest with the prime rate as low as it has been for the last 3 years. They should all have a law that limits credit card interest rates to prime + 6% or 7%. I also think that there should be a federal law prohibiting credit grantors and insurance companies from increasing interest rates, fees, or downgrading credit score simply because someone (and they are the ones who do so most often) accessed your credit file.

fredaevans
05-31-2003, 11:28 PM
Credit card rates are as high as they are for three (did I count that right?) reasons:

Too many folks pay their cards off monthly. E.G. the card issurer gets the 1-3% bight from the retailer who took the card.

Too many folks are actually delig. on their card balances ... so you who pay ... pay for them. Should have added: this is why the post started. Fair? Hay, you signed the credit card agreement .. or didn't say no when they mailed you the 'change in the rules of the road.' Are you screwed? Yup.

Too many folks have large balances, and do pay on time; this makes them "cash cows."
:eek:

BobK
06-01-2003, 07:20 AM
Having had too many courses in ethics, morals and philosophy (along with my scientific and engineering degrees), and having worked for a highly ethical company (and ALL employees, INCLUDING upper management formally reviewed ethics and morals annually), I have to ask if this excessive interest is morally and ethically OK, , or is it usury??? Don't tell me that "everybody does it", or that "people sign up for it" (stupidity needs protection, too!), that still doesn't make it right.

BTW, how much do banks pay people for interest on CDs? Isn't that one of the sources of funding to cover the expenses of the debt incurred and carried? Or does that just come from savings accounts.

This is one of the FEW cases where I think government oversight is needed. (And I hate government and politicians. They are inefficient, unethical bureaucrats, trying to build their own little empires!)

Okay - I'll get off the soapbox.

BobK:hehe:

fredaevans
06-01-2003, 10:28 AM
actually (as do all about "grade 50" and above) employees have to re-review and take just this type of 'test' and recertify annually. The materials cover a wad of different materials, Federal Laws, etc.

Interest rates .. sheeh. On most stuff we're at rates (including that paid on savings accounts) that hark back to the early 60's. 30 year fixed rate mortgages at 5.00 to 5.25%; 15 year mortgages at 4.75% ... and I've seen them as low as 4.5%. The US government (National debt, not a good thing) Treasury's are going for just a tad over 3%. So all things are relative.

Credit card interest rates ... I agree, don't get me started on this one. One of the major reasons they're so high is the default rate on these things is horific on one end, and too many folks are now paying them off monthly (or using a debit card) on the other. The few issuing banks are now playing the profit spread game to boost earnings. Maybe it's just J and I but we used to get 2 or 3 credit card solicitations per week; just the 'odd' one now and then. The market is saturated?

So how do you get targeted for these? Pretty simple. Without an actual credit application a "lender" can't pull your credit report. But what they can do is request a list of names/address from the Credit Bur's that "fit" a set of perameters. Paying habits, FICO type scores, etc. Depending upon how tight a target group you want it will cost you a few cents per name up to a little over a buck. Very special runs can cost up to $5.00 per name.

So why do you get this stuff? Well, you'd be surprised how many retailers actually track your purchases, how often, amounts, etc. Several of them then re-sell this information. Provide actual data on you, probably not, but provide your name as fitting a 'target group,' you betcha. We're not at George Orwell's "1984" but wouldn't take a lot to get there.
fae

flytyer
06-03-2003, 01:11 AM
Fred,

I have been aware of the number of folks who default and the number of folks who use debit cards (the number is continuing to increase) and the number of folks who pay their credit card ballance in full each month, or who only carry a very small ballance for very short time periods.

Also, most folks would be surprised if they knew that paying off cridit card ballances monthly actually results in a lower credit score than if a person carries a "moderate" ballance. And it is because of the profit that the card issuer makes or does not make.

Like Bob, I am not a big fan of governent intrusion into commerce; however, unless the government steps in and prevents the usuary rates, they will be used and good people who pay their bills will get ripped off from the usuary rates that can be charged. To me, this is unethical, even if it is lawful.

fredaevans
06-03-2003, 05:16 AM
You're right on all three counts.
fae