Credit & Money Management
The New Rules of Credit Cards
Banks are raising rates and cutting credit. You can beat them at their game.
By Anne Kates Smith, Senior Associate Editor
Joan Goldwasser, Senior Reporter
From Kiplinger's Personal Finance magazine, July 2009
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Paul McNamee has four credit cards, which he generally pays off in full each month, and always on time. So the Ellicott City, Md., computer scientist was taken aback when he recently received letters regarding three of the cards in the span of a couple of weeks.
Interest rates on two of them were going up -- one by nearly six points -- and fees on a host of transactions, including balance transfers and cash advances, were rising on the third card. "I'm perturbed," says McNamee.
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Steve Comkowycz, a software consultant in Greenwich, Conn., used his annual bonus earlier this year to shave the balance on his credit card below 30% of the credit limit, on the advice of a finance officer at the car dealership where Comkowycz had failed to qualify for the lowest loan rate. Shortly afterward, the card issuer cut Comkowycz's credit limit by more than half -- and he was again above the 30% threshold that lenders strongly prefer. "I try to follow the rules," says Comkowycz, who was told the cut was the result of a "loss-mitigation review."
New York City real estate broker Fran Kaback typically schedules 12 months' worth of credit-card payments through her bank's online bill-payment program. Distracted by her elderly mother's hospitalization last fall, Kaback didn't realize 12 months were up on one card until the issuer called to tell her a payment was one day late. Though she paid on the spot over the phone, Kaback's 2.99% promotional balance-transfer rate jumped to 26.3%. "I feel so ripped off," says Kaback, who paid off the $14,000 balance and closed the account rather than fork over hundreds of dollars more each month in interest.
Cardholders across America are fuming over changes in the terms of the agreements they had -- or thought they had -- with their credit-card companies. Many are mystified because they have been good customers, paying their bills on time and sending in more than the minimum payment each month. Suddenly, pulling out the plastic at the grocery store or the gas pump feels like navigating a minefield.
Fueled by populist anger, lawmakers on Capitol Hill have pushed through legislation to give cardholders more rights, while card issuers counter that a rising tide of delinquencies and defaults leaves them little choice but to toughen up.
"Frankly, we're in extraordinary times," says Adam Levin, former director of the New Jersey Division of Consumer Affairs and founder of Credit.com, a credit-card information and consumer-advocacy Web site. Even if you have a pristine payment record, take stock now of every card in your wallet -- and that goes for the cards stashed in your desk drawer, too.
Fortunately, you still have options if you discover your credit-card issuer has done you wrong. And chances are, it has.
A survey by Credit.com last March found that more than one-third of cardholders surveyed had been penalized by their credit-card companies in some way. Fifteen percent of cardholders reported higher interest rates, 11% said issuers had raised minimum payments, 8% said their credit limits had been lowered, another 8% reported that their rewards program had been cut back, and 7% said their account was simply closed.
Reader Comments (19)
Posted by: SJ at 06/16/2009 09:21:12 AM
You should point out that you must be a government employee to apply for the Pentagon Federal Credit Union Visa Platinum Rewards card.
Posted by: Blair at 06/16/2009 09:21:48 AM
The only obvious answer for me is to stop the credit card use for almost all transactions. The examples in the article are of people who are ADDICTED to credit. I'm thinking of going cold turkey and paying cash or debit card for everything. (I can't figure out a good way to rent a car on a debit card, however...)
Posted by: Green Man at 06/16/2009 09:59:16 AM
The rise of the financial services industry in the US has paralleled the decline of manufacturing, the explosion of our foreign trade deficits and our growing indebtedness to foreign interests. Just as the early manufacturers were legendary for their abuses of workers, women & children included, and it took a labor rights movement to reign them in, we are now witnessing the abuses of power perpetrated by the unregulated financial services industry. Not only have they colluded with the ratings agencies to falsely rate high-risk toxic assets and hide them in derivatives, but now they are preying on all the consumers who they have enticed into credit card addiction. If we wish to steer the US economy back onto solid ground, then we must begin the raucous process of demanding consumer credit rights and the imposition of sensible regulation upon an industry that has become toxic to our collective future. Too big to fail? No, too big to prey freely.
Posted by: LibsStink at 06/16/2009 11:08:40 AM
Just one more "change" delivered by the worst president since Jimmy Carter...
Posted by: Bob at 06/16/2009 12:52:19 PM
Obama rose rapidly in politics because he was always ready to compromise on anything. Waiting almost a year for the new credit card regulations to kick in is just another such compromise. He and Congress will crow that they protected the public after giving the credit card companies ample time to make one last big haul. The credit card companies have flooded the country with easy credit card applications for years and should have to accept the losses now instead of raising rates and fees to cover their greed. It is also time to crack down on credit rating companies. No one's credit rating should go down for canceling their credit cards. IT SHOULD GO UP. Watch for Obama and Congress to continue making claims of reform and regulation while allowing enough compromises and loopholes that prevent any real reform. "The more things change,the more they stay the same" and "Politics as usual" continue to be the quotes of the day.
Posted by: SteveW at 06/16/2009 02:44:42 PM
I'm sorry, but if you carried over a credit card balance last month, you are part of the problem, and I have no sympathy. Yes, easy credit was marketed shamelessly and granted indiscriminately, but who fell for it, and why? When creditors start hurting, what makes you think the debtors are going to get off easy? It's not about fairness, it's about who owes whom money. Put yourself in a position to forget the interest rates. Find a resource to pay the dang thing off, then keep it paid off monthly so there are no interest charges ... and go for the rewards.
Posted by: Joan Goldwasser at 06/16/2009 03:22:04 PM
Hi, this is Joan Goldwasser, author of this article. In response to SJ, government employees are eligible to join the Pentagon Federal Credit Union but they are not the only eligible group. Members of the US military and employees and volunteers of the American Red Cross are eligible. Family members and housemates of members can also join. If you don't fit in one of the categories for membership, which are listed on the credit union's website, you can pay a $20 fee to join the National Military Family Association, which makes you eligible to join. Hope this helps!
Posted by: MWB at 06/16/2009 03:35:37 PM
Look folks. Just quit using the blasted things. If you don't have the money in your pocket or in your bank account, don't buy it. It's time people become responsible for their own finances.
Posted by: Leann at 06/16/2009 03:36:17 PM
I agree with Bob. Your credit score should go up for canceling your credit cards not down. I canceled three cards because my rates almost doubled for no apparent reason, never late, over the limits, always paid more, etc., and I could really give a hoot what it does to my credit score... I have paid off the balance on one and am working on the other two.
Posted by: Dave at 06/16/2009 05:57:36 PM
Citi Bank changed my due date from the second of each month to the 29th without letting me know. Luckily I caught it before it caught me. I can see no reason for this other than simply trying to force me to default. I no longer use Citi...
Posted by: Dialdan at 06/16/2009 07:39:33 PM
We do have a choice... As for me, I'm going back to the times when everyone used good old cash ... Think about it. The gas stations are already giving breaks for cash purchases. When we stop using the plastic they will be back to begging us to use the cards again... This time, I'm not falling for it. The only card I'll use is my debit card.
Posted by: Tom Seddon at 06/16/2009 10:52:34 PM
Obama has nothing to do with what the credit cards are doing.. It is the Republicans that run all the financial institutions that [want]as much money as they can get...
Posted by: Bill at 06/17/2009 01:23:43 AM
LibsStink seems to think that this came about as a result of President Obama. I'm afraid that de-regulation and lack of oversight in the credit card field is more a result of the previous Bush Republican administration. And Bob complains that due to Obama's compromise the regulations don't take effect for almost a year. He forgets that at least something is being done. Where was the Bush administration on changing anything in this regard??? Sleeping at the wheel!
Posted by: Trina V. Sargeant at 06/17/2009 11:55:16 AM
I think I read, pretty thoroughly, this article and yet nowhere did you say if readers can't afford to pay for something, they shouldn't buy it. Debt leaves everyone at the mercy of the (predatory) lenders. You don't have to have everything you want.
Posted by: FGS at 06/17/2009 02:07:36 PM
... The Dems were in charge of Congress and encouraged the low credit standards...I'm afraid both parties can share the blame on this one. Time for more people to start thinking independently and putting both parties feet to the fire. I'll admit that Obama, in his current post, had little to do with it, but he was a senator who could have taken a side earlier and chose not to.
Posted by: Bob at 06/17/2009 04:03:27 PM
To Bill. Obama came from my State and I have watched him operate for years. Notice that I said that he AND Congress compromised by waiting almost a year for the regulations to kick in and then take credit for doing something. You are right that Bush didn't do anything nor did Clinton before him. Both parties deserve blame for the lack of financial regulation. 90% of the people in Washington are still there and many are playing musical chairs between government and business. Don't expect new reforms to have any teeth.
Posted by: Shani at 06/25/2009 05:10:04 PM
I hate that joe public has/is/will suffer the disadvantages of a credit based society. I hate that banks have taken the public's hard earned money and turn the money against it by charging ridiculous fees, increasing interest rates, and so forth. I have witnessed the workings of a cash based nation and must say that perhaps there's something more sound about living in a society in which one buys items one can truly afford out right. Despite the banks' shady practices, one thing is clear, over spenders, even those you are on top of paying their bills in full and on time ought to learn a lesson. IN the future, DO NOT spend what you don't have. DO NOT allow friends and family to interfere in your financial matters. BE selfish. BE accountable. BE frugal. Be yourself, not The Jones. Live within your means or, below, for that matter. This way, you won't ever really have to depend on others for financing your life. Does that mean you should hold off on buying that Coach purse, HD TV or car, or condo until you have the money...perhaps? My rule is not to charge anything that can't be paid off in a year on a part-time minimum wage job. So if I were to ever get laid off from teaching, I can at least work at Target and pay down my debit.
Posted by: Donna at 08/04/2009 12:54:04 PM
The best way to prevent banks/bank holding cos/credit card cos from doing harm to the consumer is NOT to use their product. Can you imagine the discomfort at the CC companies if 75% of their customers cancelled their cards!!! Who sez we HAVE to use the bank's money to finance our life style? Save up and pay cash for purchases. Make sure you have enough $ in an emergency fund so you can have peace of mind and not think you need a credit card for emergencies. I wish I could have learned this when I was young.
Posted by: Sandra at 08/10/2009 02:22:31 PM
To Everyone who wrote a comment "assuming" credit cards were only being used for items one did not need...I guess each & every one of you has medical insurance and/or NO serious medical conditions; perhaps made or inherited wealth, a spouse who helps with the "income flow",etc..3/3 vehicle "I never saw coming" accidents, all in PIP No-Fault States, 2 while I was stopped at a red light waiting for it to turn green or one where a moron hauling a junk trailer in which his wheel and 6' axel flew off, yes-right into me...results are two blown out knees, a back with torn and/or herniated discs, now bulges between each and every cervical & lumbar disc,(just a small sampling of injuries sustained) & living in a State(FL)which ranks 49th in "pay-outs". Never recv'd enough of a settlement to pay the then current medical bills;no one would insure me, even if I could have afforded it after the 1st accident- forget about the ongoing ones which medical expenses will be for life....Never a late fee, always paid far more than the minumum, etc.etc. Our world consists of "legal extortionists" in the insurance,medical,banking,legal/attorneyfields. Oh, almost forgot the lobbyists...My auto is 14 years old, my TV's are ancient, my computer, thankful to my brother, is only 3 years "young", my home was inexpensive but still a fixer-up after 16 years-refied 7 years ago but only enough to pay off medical bills and replace a leaking roof....Not a "Sob stor"y here..just VERY upset, overall with the whole situation and that unbelievable amounts of my hard earned money has gone to pay for medical expenses plus credit card interest. Some of us, Shani, have no other choice but to use credit cards and how I wish at least once over the past 20 years I could have taken even a small vacation! There are people out there worse than me, some have to pay with credit cards to feed their children!...It's only going to get worse.