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chyna's avatar

If the economy is in such bad shape that the president is signing bail-out bills, why are charge card companies allowed to increase their interest rate?

Asked by chyna (34025 points ) August 19th, 2009

I received a notice today that my Sears credit card and my J.C. Penney’s credit card are increasing their interest rates to 25.24%! That is outrageous. Per their letter it is due to “this challenging business and economic climate.” Thank goodness I do not carry a balance on either card. How can they do this when all you hear is how bad the economy is and “what can American’s do to get out of this tailspin?”

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13 Answers

dpworkin's avatar

They sneaked the increases in before the legislation took hold.

casheroo's avatar

All my interest rates went up :( So much so that we fear using our emergency credit card (we only have one). It’s really ridiculous.

marinelife's avatar

In America, campaigners this week will target Citigroup and Wells Fargo. Average credit card debt per US household was $8,329 at the end of 2008. Jonathan Lange, organiser for the Industrial Areas Foundation, said: “Usury and predatory lending cuts directly to the relationship between capital and working people in a way no other issue other than the right to form a union does.”

Source

kyanblue's avatar

In general, credit card debt is the spawn of Satan. DO NOT TOUCH IT, NOT EVEN WITH A HEDGE FUND. IT WILL DESTROY YOU.

I wish all public schools had a week of learning about personal finances and the pitfalls thereof. It might even be more useful than sex ed.

It’s particularly scary that there are people with thousands of dollars in credit card debt. Interest rates were insane, even before that hike to 25.24%.

I know quite a few bits of credit-card legislation are being pushed through Congress or about to be signed by Obama. I’m guessing those companies are getting panicky and trying to dig themselves out of a hole?

Darwin's avatar

The high rate of interest is helping your credit card company stay afloat in “this challenging business and economic climate.” They don’t care about their cardholders filing bankruptcy as mich as they care about themselves having to do so.

galileogirl's avatar

What “allowed” ?? The Federal Govt does not set cc int rates any more than they set gas prices or the prices Sears charges for appliances.

Usury laws are state laws and I remember when the maximum interest rate in California for all loans was 9%. If a higher rate was charged the lender was loansharking-a criminal offense. The state of S Dak ( I think) had a very high or maybe no limit and some banks moved their cc operations to take advantage. The lender’s state laws set the limit not the borrower’s. Also as part of the derugulation frenzy of the Reagon administration, banks went from limited to a single state to being able to operate anywhere, A Supreme Court ruling stated that these interstate banks were not limited by state usury laws, but at no time has the Federal Govt had the right to control interest rates.

SecondGlance's avatar

If someone is lending you money, they have every right to charge whatever they want as a fee. Period.

Here’s the solution: people need to stop buying things they can’t afford. (You’ve got that figured out as you mention you carry no balance.)

Feeling that someone owes you credit is a bizarre mindset. It is YOUR decision to borrow money from total strangers to buy things you shouldn’t be buying. Understand credit for what it really is. Credit card companies are private lenders, not government-run welfare handouts as some people think. They operate for a profit. Don’t like it? That’s fine, shop around for other companies with lower lending rates. Same as buying a car or pair of pants. Either pay what they ask, or don’t buy.

It is no more complex than this. It has nothing to do with the government.

dynamicduo's avatar

You seem to be under the impression that the government controls credit card companies. This is not true at all. Thus the card companies can do whatever they need to in order to ensure they make money. During this current economic situation more people are bailing on their credit card bills, thus the company has chosen to raise the interest rate on other cards to compensate.

All Americans need to do to get out of this tailspin is to NOT SPEND MONEY they DON’T have! It’s as simple as that! If you live within your means you can pay off your credit card at the end of each month. Having a credit card is a requirement in Canada and the States if you ever intend to buy a house, because you need to establish your credit rating and not having any credit cards is actually worse than having a spotty credit history. But you need to be responsible with your card and not treat it like free money, or it will bite you in the ass. It’s good to hear that you don’t carry a balance, @chyna, but do realize you are the exception to the rule, generally. Credit card companies don’t make money off people who carry no balances.

galileogirl's avatar

Ahem @SecondGlance & @dynamicduo There are in fact usury laws in most states. Here in California, the limit is 10 % for private loans. So if I loaned money to another person and I wrote up a promissary note with an annual interest rate of 26% (what a cc rate might be) in a court case that would be deemed usurious.and the borrower might not have to pay any interest becuse the note was illegal.

http://www.lectlaw.com/files/ban02.htm

As far as what @chyna said about maintaining a 0 monthly balance, nearly 40% of us do it. In fact, I pay a negative interest rate because I use cash back cards which pay a return on all purchases. So every year I build it up to $150 cash back balance and then I apply that amount to my cedit. If I were to buy something like furniture or appliances, I would open a 1 year/no interest account and pay it off in lt 1 year.

wundayatta's avatar

I think they have passed a national law limiting interest rates on credit cards, but that limit doesn’t kick in for a month or so, and all the companies are raising the rates while they can. Perhaps the existing rates are grandfathered in if enacted before the limit kicks in.

galileogirl's avatar

@daloon I would be interested in which law you are talking about. I am aware of the Fair Credit Billing Act 2009 and the Fair Credit Reporting Act 2009 and the Truth in Lending Act 2009-none of which specifies interest caps. The TILA and FCRA are about expanding and clarifying the information provided to the consumer in a point 6 font on that extra piece of paper in your bill-you know the one you toss out with the used envelope.

The FCBA is the one that allows you to challenge any charge and get a response within 2 mos. It also sets the number of days between the date of mailing and the due date of the payment. They were getting down to less tha 11 days. I may be wrong but I think that when the cc co raises it’s interest rate, it can only charge the higher rate on purchases after that date. Earlier purchases are still billed at the old interest rate which is not really capping interest because all payments are applied to the lower rate interest to get rid of them faster and eventuall all your purchases will be at the higher rate and they will raise rates and charjes again.

wundayatta's avatar

@galileogirl Perhaps you are right. I may have misunderstood the radio article.

Ok, I misunderstood. In this broadcast, they said it will be 45 days notice of a rate increase, not a cap on rate increases. Here’s an article about it that you can read.

Cruiser's avatar

I would cut those cards up immediately and write them to cancel the account and call 2 weeks later to verify they did that and then check your credit report to ensure they no longer show up. I would not patronize any company that treated their customers so poorly unless of course that customer was a credit risk in the first place.

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