Banks draw criticism for raising credit card rates
April 17, 2009 by admin
The 15th of April brought hundreds of thousands of Americans to the streets to protest the countries current tax codes. There could be a similar rally in the streets as consumer groups line up to demonstrate against banks raising consumer credit card rates sharply. The banking and finance industry have been the blunt of criticism for reluctance to lend and helping to create one of the worlds worst recessions through toxic lending and off balance sheet transactions.
This week Bank of America sent notices to millions of customers that they would be raising their credit card interest rates well above ten percent. The banks believe they are justified in their rate increases, to offset losses in their business from the economic slow down. Credit card holders will be receiving rate increases, even if they have been paying their cards on time and have not exceeded their card limits. This decision is certainly going to be an issue that gains more political attention moving forward. Consumer groups will be quick to point out that the banks that are raising credit card rates, are the same companies that were in the forefront of the toxic lending. Bank of America was one of the nations largest mortgage lenders, and combined with Countrywide they are one of the top three lenders who created and offered negative amortization loans, one of the key ingredients in the housing crisis.
Consumers who are struggling with their finances, certainly will be challenged if other banks follow in the same path as Bank of America. Earlier this year, American Express sent notices to their customers that they were implementing credit line reductions and offering financial incentives to customers who would pay off their balance and close out their accounts during a specified period of time. Almost all of these companies have increased their loss provisions due to the challenges within the current economy and are likely to see larger losses in these areas of their companies as consumers struggle to pay their bills. Most of these companies have also received money directly from the government throught the TARP or TALF program, in an effort to encourage the banks to continue to lend out money.
The best advice from most conusmer advocates would be to try to pay off your credit card balance or transfer the balance to another credit card company where you can lock into a lower fixed interest rate until the balance is paid in full. Consumers with great credit are finding it more challenging in todays credit environment to obtain financing, so be certain to explore your options and the banks credit requirements prior to applying for a new card or loan.