Wednesday, May 20, 2009

Check Your Credit Card Agreements!

This week I received a notice in the mail from Chase. My credit card APR has been increased from 13.24% to 20.24%. This is effective July 1st and covers future and existing balances. Why would my APR be raised so drastically when I have a credit score of 734 and I have paid off my balance in full each month? Now obviously I never pay interest (I like to say that I earn interest, not pay it) so it is not a major concern.

Still, I was curious, so I called Chase to inquire. The service representative told me it was a "business decision" and would not further elaborate. I asked her if it made sense to charge a customer with a perfect payment history and a 734 credit score over 20%, especially considering interest rates are near all time lows? She did not have an answer.

Why would Chase raise my rates? This could be why:

The House today gave final approval to a bill that would prohibit credit card companies from arbitrarily raising interest rates on existing balances and charging certain fees.

Also see Record Credit Card Defaults In April:

Wells Fargo10.03%9.68%
JP Morgan Chase8.07%7.13%
Discover Financial Services8.26%7.39%

So there you have it. These two events will have major repercussions for the credit card industry. It will now be much more difficult to obtain a credit card. The days of one year 0% APR teaser rates are likely over. Now that credit card companies will have a harder time making money off of irresponsible customers, they plan to go after the responsible ones. See Credit Card Industry to Profit From Sterling Payers:

Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years.

Hi there - that's me.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

Bring it on bankers. If my credit card company decides to enact an annual fee, eliminate the rewards program or charge me interest immediately on purchases, I will simply cancel the card. If no other credit card company will make me an offer without these options, I have no problem going back to using cash for everything.

If you have a credit card I would advise you to check your credit card agreement and even call your credit card company to check if the terms have changed. If you have an existing balance and your rates were jacked up through no fault of your own, demand that your bank lower the rate back down. If the representative refuses, ask for a manager and demand the same from them.

In the end, almost all bank fees are negotiable so do not pay any fees that you deem inappropriate. Credit card service representatives are trained to drain the most money possible out of you so if you threaten to pay nothing, they will be willing to negotiate. Here is an interesting article that sheds some light on how credit card companies operate:

Luckily for the industry, small groups of executives at most of the large firms have spent the last decade studying cardholders from almost every angle, and collection agencies have developed more sophisticated dunning techniques. They have sought to draw psychological and behavioral lessons from the enormous amounts of data the credit-card companies collect every day. They’ve run thousands of tests and crunched the numbers on millions of accounts. One result of all that labor is the conversation between Santana — a former bouncer whose higher education consists solely of corporate-sponsored classes like “the Psychology of Collections” — and the man from Massachusetts. When Santana contacted the man last month, he was armed with detailed information about his life and trained in which psychological approaches were most likely to succeed.

“Boom, baby!” Santana [a credit card representative] shouted as he put down the phone. “It’s all about getting inside their heads and understanding what they need to hear,” he told me later. “It really feels great to know I’m helping people in pain.”

Before [the writer] left the Bank of America training session in Delaware, the instructor gave the class a little pep talk. “You’re going to have some days when you help customers, and you’re going to walk out and feel really, really good,” she told them. “It’s O.K. to help people know that we are all working to make the world a better place. It’s O.K. to help them believe.”

I will leave you with that heartwarming thought.
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