Wells Fargo Will Raise Credit-Card Rates Ahead of Law
By Peter Eichenbaum
October 7, 2009
(Bloomberg) -- Wells Fargo & Co. plans to raise interest rates on a majority of credit-card customers by 3 percentage points before federal rules limiting such increases take effect, a company executive said.
“This is something we’ve been contemplating for quite a period of time,” Kevin Rhein, group head of card services for the San Francisco-based bank, said today in a telephone interview. “We had just reached the point that we don’t think we can offer credit cards at the current pricing and keep credit flowing.”
Wells Fargo began advising customers this week that the change takes effect on Nov. 30. That’s a day before House Financial Services Committee Chairman Barney Frank wants curbs on rates and fees to become effective under the new U.S. credit- card law. The Massachusetts Democrat plans a hearing tomorrow on moving up the date to Dec. 1 from Feb. 22 to head off increases by card issuers.
Rhein didn’t comment on whether Frank’s bill had a bearing on the timing of Wells Fargo’s rate increases. The bank is also eliminating over-limit fees, which are imposed when customers exceed their credit lines, he said.
Wells Fargo is the eighth-biggest U.S. card lender, Rhein said. The company accepted $25 billion from the government’s bank bailout program.
Bank of America Corp., the second-biggest U.S. credit-card lender after JPMorgan Chase & Co., said in Oct. 5 letters to Frank and Senate Banking Committee Chairman Christopher Dodd that the company wouldn’t raise rates and fees on customers in good standing until the effective dates of the Credit Card Accountability Responsibility and Disclosure Act.
The law, which takes effect in stages, includes provisions that limit rate increases and require lenders to apply payments to higher-rate balances first.
Dodd, a Connecticut Democrat, urged competing card issuers to follow the lead of Charlotte, North Carolina-based Bank of America, the biggest U.S. bank by deposits and assets.
Aides for Frank and Dodd didn’t respond to requests for comment on Wells Fargo’s decision to raise interest rates.
The change doesn’t affect some customers, typically those who signed on within the past year, and others the bank gained from acquiring Wachovia Corp., said spokeswoman Lisa Westermann.
Wells Fargo rose 60 cents, or 2.1 percent, to $29.26 at 4:15 p.m. today in New York Stock Exchange composite trading. The shares have fallen 8.3 percent in the past year.
While Bank of America raised rates on some customers in June, the notifications were sent in April “before we knew the outcome of the final legislation,” spokeswoman Betty Riess said yesterday in an e-mail. Bank of America may raise rates for customers who are late on two or more payments within 12 months, Riess said.
JPMorgan, which raised rates and fees and imposed higher minimum monthly payments after President Barack Obama signed the legislation on May 22, intends to comply with the law’s provisions when they become effective, spokeswoman Stephanie Jacobsen said in an e-mail.
Capital One Financial Corp., the third-biggest issuer of Visa Inc. credit cards, is in “full compliance” with the law, including provisions scheduled to take effect Feb. 22, spokeswoman Tatiana Stead said in an e-mail.
Discover Financial Services customers have been notified of price increases or changes in terms, said Matthew Towson, a spokesman for the Riverwoods, Illinois-based company. Discover has “gone beyond the requirements in some cases including eliminating pay-by-phone fees, over-limit fees and default pricing on existing balances,” he said.
To contact the reporter on this story: Peter Eichenbaum in New York at firstname.lastname@example.org