Saturday, February 19, 2011

Credit Card Rates Rocket Up

From the Website New Deal 2.0:
This week’s credit check: Average credit card APR is 14.72%. Interest rate for banks borrowing from the Fed is 0-.25%

The latest news from the credit card industry: interest rates are soaring. Wait — didn’t the CARD act put a stop to all that abusive behavior? Turns out they’ve found some ways to bend the rules.

It’s true that the bill put a cap on how and when companies could jack up interest rates after a card is signed. But rates are now reaching record highs before accounts are opened, at an average of 14.72% APR. If your credit is really bad, you could end up with a rate as high as 59.9%. And just as banks protest that the rates are high in order to balance out risk, like addicts who can’t kick the habit they’re ramping up lending to risky borrowers again. Yes, they’re being more cautious — this time credit scores alone are no longer enough for their screening purposes. They’re now scrutinizing other behavior, such as registering on a job site (something that millions of unemployed Americans are probably doing). They’ve got a new classification system worked out too: “strategic defaulters,” whose scores took a hit when they walked away from an underwater mortgage; “first-time defaulters,” who once had a strong score but hit financial trouble because of the recession; “sloppy payers,” who only pay some bills on time; “abusers,” who are defiant about paying; and “distressed borrowers,” who just can’t pay. Those last three categories are the ones they’re trying to weed out; they’re focused on wooing defaulters who theoretically would have a good score if the crisis hadn’t happened. But when 14.5 million are out of a job, more and more people may find themselves simply unable to pay. Not to mention that they may also start to feel defiant.

How do you fight the banker ripoffs? Here's one solution:

You might remember the debtor’s revolution, started by one someone who definitely qualifies as an “abuser.” Ann Minch told Bank of America to “stick it” in a YouTube address before she would pay a cent on an account whose rate had been jacked up to 30% — and for no good reason. Her media wave finally led to the bank trying to get her to accept a lower rate: 16.99%. Did she take it? Nope. She told the customer service rep, “Because you guys are getting your money from the Fed at 0% interest, or at the most .25, that 12.99% is more than a generous profit margin for you guys.” And he finally agreed to her terms. It’s a good reminder — banks are borrowing their money at the lowest interest rate the Fed can possibly offer, despite reneging on so many loans that they had to be bailed out (and caused the global economy to collapse). If they’re not risky borrowers, who are? Yet they see fit to charge their risky customers excessive interest rates.

Credit Card Interest Rates Near 60% as Banks Return to Risky Borrowers
Bryce Covert
Wednesday, 02/2/2011

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