Rate Jacking is a popular new term to describe the latest in a long line of unsavory business practices initiated by the credit card industry against consumers. Rate jacking is a sudden and dramatic jump in the interest rate on your credit card. The change in rate may be for no reason at all, or what many would consider to be a very flimsy reason. For example, if you have two cards and are late on one, you may have your rate raised on both cards if they are from the same issuer. Tens of thousands are reporting that with no warning at all, and for no apparent reason, their rate has jumped or even doubled. Other practices include double-cycle billing, which averages the balance over a two month period and can cause a consumer to be charged retroactive interest on a prior balance. When I read about some of these practices, I became convinced that these people sit in meetings all day coming up with ways to scam their customers. With all of the recent outrage about the mortgage industry, I don’t know how these practices have stayed off the radar screen of regulators.
While there has been talk for years about Congress passing comprehensive credit card reform, nothing has been done. Unlike every other segment of the financial industry, credit card issuers seem to be able to do just about anything they want with impunity. Of course, we all know that the credit card industry is one of the largest lobbying our elected officials. Despite the lack of action by the Congress, the Federal Reserve has now stepped in with some new rules for credit card companies. Most consumer advocates, including myself, don’t see these rules as accomplishing very much. Those praising the new rules say they will make it more difficult for credit card issuers to raise rates on consumers. The rules are also supposed to give consumers more time before late fees are charged, and a host of other rights. The rules don’t go into effect until July of 2010, so plan to wait 18 months to get any relief.
There may be some glimmer of hope from a President Obama. Here is a quote from a speech he made in July:
“Many more Americans aren’t falling into debt because they made an irresponsible decision; they’re falling into debt because credit card companies are pushing them over the edge. For too long, credit card companies have been using unfair and deceptive practices to trick Americans into signing agreements they can’t afford. The contracts you sign when you get a card have gone from being one page-long a few decades ago to more than thirty pages-long today. And they’re often filled with traps and fine print that only a credit card executive could understand. These companies have been crossing the line to boost their bottom line.”
If this was not just campaign rhetoric, I think Mr. Obama could be a force to change the unfair practices of the credit card industry. Americans currently have about one trillion dollars in credit card debt and about 5% to 7% of cardholders are currently delinquent on their payments. Many experts expect the next financial meltdown to be that of the credit card industry.
Here is an outline from the Fed on what they expect the new rules to accomplish:
Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.
Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.
Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.
Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.
Banks would be required to provide consumers a reasonable amount of time to make payments.
My personal view on all of this is that carrying balances on credit cards has never made sense, and makes even less sense today. Not only are we going into some of the worst economic times we have seen in 50 years or more, we are dealing with a new culture of corruption in the credit card industry. These are the same people that you and I recently gave a bailout to the tune of the hundreds of billions of dollars. My best advice; pay off your credit card balances. Some people would suggest moving card balances to new cards to get better treatment. That might provide some temporary relief, but is probably nothing more than rearranging the chairs on the deck of the Titantic. If you do want to shop for a better deal, here is a link Credit Card Rates.
Don’t expect these sharks to treat you fairly. Don’t expect these new rules to do much if anything to change the industry. Many of the current practices are clearly fraudulent and could be stopped if there was an interest to do so. Credit card companies have far too much power in this country for consumers to ever hope to be treated fairly.
Helping you make the most of God’s money!