Will government ownership of banks end usurious credit card rates?

by Charlie Leocha on October 16, 2008

I have a Chase Bank credit card with a line of credit that I have used for 10 years. Last month, I missed a payment for the second time in 10 years and the sub-10-percent interest rate jumped to 28.99 percent! I think the mafia gives better rates than that. Now that the US government is buying into these big banks to “stabilize” the system, it is time that consumers stop getting screwed.

Naturally, I immediately paid off the credit card and shifted my balance to another credit card with zero interest. It turns out Chase did me a favor by forcing my hand. But what about the poor folk who do not happen to have a clean unused line of credit filed away?

I fully admit that I knew the rules and was late with the payment, but Chase’s refusal to alter the almost 30 percent rate and bring it into line with rates offered new customers, or even allow me to speak with a supervisor, was completely unreasonable.

These kinds of usurious interest rates are not the only unjust actions by credit card companies. Currently, the laws against usury vary by state. The general usury rate is eight percent in Alabama while it is 45 percent in Colorado. I’m sure that there are far more laws that vary by state for credit card issuers, hence some of the surprising addresses where payments are sent.

For travelers, these credit card companies charge a hefty additional percent (sometimes up to four percent) for taking a cash advance while traveling in foreign countries. There is always a charge for cash advances wherever they are taken. Plus, banks charge an exchange fee of one percent. Most credit cards these days even charge a foreign transaction fee for any charge outside of the USA.

After all the fees and charges, taking money from a bank machine overseas can cost seven percent. A whopping percentage like that (hidden for the most part from most consumers) makes one long for the clear cut simple bank fees charged right at the teller.

In the past, Congress has opted not to regulate interest rates on private transactions. Now, however, with the federal government taking an ownership stake in banks that are issuing credit cards by the millions, it is time that Congress take another look at what could be considered loan sharking by credit card companies charging in the vicinity of 30 percent interest.

Now that we the people are about to become owners of greedy banks, I hope that one of the first changes is a federal usury law and an overhaul of the pernicious practices instituted over the years by the credit card industry.

This should be a priority. We as citizens should demand it.

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Tagged as: bank nationalization, credit cards

  • Oscar

    Perhaps if you had read the rules provided by the credit card company that you agreed to when you signed up you would have known that missing a payment would raise your rates.

    Or heaven forbid you could be a fiscally responsible person and live within your means instead of racking up debt, then you wouldn’t care what the interest rate was. If you’re either unwilling or unable to live within your means, I see no reason why they banks can’t profit from your failings.

    Oh…am I being too harsh? That’s right it’s never your fault, no personal responsibility is so out of style, no let’s blame everyone else for your failings, not your fault you didn’t pay the bill, not your fault you didn’t read the fine print, not your fault you use your credit card for cash advances. Always the bank or the government to blame.

    It’s people like you that make me sick, America was found on self-reliance and self-determination, not on complaints and demands that we be protected from our own stupidity.

  • aliasbuck

    Oscar,

    You might want to try reading the column a bit closer. Right there in the third paragraph, the columnist blamed only himself for missing the payment, nobody else. It’s not about blaming the bank for jacking up the rate. It’s about how much and

    The problem was the amount of the increase: over 200% jump for missing a payment for the second time in 10 years and then refusing to even negotiate. The bank is willing to look for new customers at a lower risk rate when they don’t know if the customer would be a good risk, but is not willing to negotiate with a customer who is a good risk? How does that make sense?

    Considering that giant oligopolies are allowed by law, it is reasonable to expect those oligopolies to act fairly in business. If they do not, then it is also reasonable to demand change. Simple as that.

  • john m

    Some years ago I had a Citibank card, which I had had over 10 years and never missed a payment and never had been over the limit. I mailed my payment 10 days prior to the due date. It cleared my bank on the due date however Citibank maintained it was late because they hadn’t processed it by the due date. My interest rate jumped from 7.6% to 29.9% plus a $50.00 late fee. When I called Citibank and spoke with a supervisor I was told that their policy was not to credit the account until they had finished processing it. To top it off she indicated that there was no appeal on the rate hike and/or the late fee.

    I immediately cancel the card and closed all my accounts with Citibank because they had their money on or before the due date.

    I don’t see Charlie making excuses for his behavior. He admits that he was late with the payment and he expected to negative impact however I think that he makes one very good point and fails to make a second one that he should have made. His first one is that the punishment is far too extreme for the crime, so to speak. The second point that he eludes to but doesn’t come right out and say, is that the credit card company is not providing customer service and by taking such extreme action is losing a customer. This is bad business since the cost to gain a new customer is significantly higher than the cost to retain one.

    As for the question about usury and will banks that get bailed out by the taxpayer reduce the amount that they charge, well, it would be nice however I won’t hold my breath.

  • Matthew B

    I think what is needed here is recognition that the banking industry, while competitive, is not a free market in the theoretical economic sense. In a free market there are many buyers and sellers, low barriers to entry and equality of bargaining power by contract participants. In the banking industry, most borrowers or depositors are faced with a like it or lump it mentality from the banks. In fact, Charlie was acting like a free market player: Chase refused to negotiate, he took his business elsewhere. I have been in the situation where, even without missing payments, a bank increased the interest rate on a credit card to 32.99%, just because they didn’t like what they saw on my credit report. My solution in that situation was to pay off the card, leave it with a zero balance for two months (just to make sure accruing interest had stopped) and to phone the bank and close the account. They were more than willing to negotiate a lower rate when I wanted to close the account.

    Financial advisors will often tell you not to close accounts because it hurts your credit score, but sometimes the satisfaction is worth the hit.

    BTW Chase actually offers you the option of automatic payment. You should always automate payments wherever possible to avoid the situation described in this post. I have a Chase credit card and they debit my checking account for the entire balance each month on the due date. I always know how much this is because I monitor my accounts online. Even if you only authorize for the minimum payment due, and then pay additional amounts by some other means, this ensures you do not end up in default.

  • Joel Wechsler

    Aside from the obvious fact that Oscar did not read Charlie’s letter carefully, and aside from the fact that if he is totally debt free himself, i.e. no mortgage, no car payment etc., he is a very rare animal, there is one thing which he does not seem to know. Because foreign countries, especially in Europe, have moved to so-called smart credit cards with an embedded electronic chip, U.s. issued cards are becoming less and less usable. The only reasonable alternative to carrying large amounts of cash is to get cash from an ATM using your credit card or a bank debit card. In either case, the fees are usually hidden and usually higher than can be justified.

  • AndyM

    Oscar,

    Your kneejerk reaction to Mr. Leocha’s article says much more about you than it does about him. As aliasbuck pointed out, you were so quick to judge that you clearly missed the confessional tone of the article. Or perhaps you simply enjoy belittling people and basking in your sense of self-righteousness.

  • Landel31

    Some years ago I had a Mastercard through Seafirst Bank. I was late with payment of the annual renewal fee. They hit me with a nominal late fee which I felt was unfair because I had not used the card. In other words they had not advanced me any credit.
    With my statement I mailed back the tiny pieces of the card along with a check covering the renewal charge and late fee, plus a fifty cent overpayment.
    For six months I received a monthly statement showing my fifty cent credit. Finally they sent a fifty cent check. I never cashed the check.
    Now I bank with a credit union. There are no fees and and I pay off my cc balance each month

  • Cindy Kaebisch

    The bad part is that if you innocently miss a payment (not talking about people that overextend themselves, but maybe misplace it or something, such as the author did), it can have an effect on other aspects of your credit. When it comes time to renew your auto insurance, they run a credit check and if you have issues, your insurance rates go up as well.

    Many years ago, I have a charge card where for no reason (I never made a late payment), my interest rate was jacked up nearly 5%. Needless to say, the company wouldn’t negotiate either despite the fact that I had been a loyal customer for many years, and I immediately canceled the card. I’m much happier with the one from my credit union and plan to stick with it!

  • Bill

    It surely doesn’t make good business sense how banks hike rates and don’t negotiate. If they don’t think you are a good credit risk, they shouldn’t give you a card in the first place. If they do consider you a good credit risk, they should deal with you in a fair, businesslike manner. Good customers are difficult to find.

  • Mike

    There are many ways that a missed payment can happen. If you travel a lot, it is always possible to miss a due date. I spend an inordinate amount of time checking and double checking my bills before every business or personal trip of more than a day or two. I have a couple of things that don’t offer any sort of online access to account statements, and it can be a royal pain to get the bill paid on time when traveling.

    The author did not blame anyone else for missing the payment.

    I don’t see why the banks are so unwilling to make an exception for a customer with a strong payment history, and I don’t understand why the penalty rates are so damn outrageous.

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