Credit Card Cutbacks Hit Consumers Hard
"Never A Late Payment"
It's not just American Express cardholders that have been hit with credit line cuts in recent months. ConsumerAffairs.com has received complaints that many different banks are suddenly cutting credit lines and raising interest rates, often simultaneously.
Bill, from Fort Wayne, Indiana, had been a Bank of America customer for over twenty years. In November, he was shocked to find his credit line had been reduced from $19,500 to $1,000 without any explanation.
"I called to find out why, they told me a bad report from Experian," he said. "I called Experian, no such report. my credit score is 750. Never a late payment to anyone in my life. totally meesed up my future plans to use this credit line in my business."
Steve, from Glendale Arizona, used his Citi credit cards to finance purchasing a new business at a 3.9 percent annual percentage rate (APR). He received a letter on November 23 stating that Citi was increasing his interest rate to 24.9 percent, effective immediately.
"The only way I can stay at my current rate is to 'opt out', which means, I must close my card and have the total paid by 9/2009," Steve said. "I have no choice but to do the opt out or I will be paying approx. $395 monthly in interest instead of 79.95."
Even customers with store credit cards have been hit with cutbacks and interest rate hikes. Miguel from San Juan, Puerto Rico was told that his Sam's Club Discover card, financed from GE Money Bank, was having its credit limit cut "from $6,000 to $1,920 based on late payments."
"I have always paid this card and my other accounts on time without any problem," Miguel said. "I...was told by one of their reps that I have to address the issue with the credit reporting agency cited on the letter which it was Equifax and they were the ones who reported the negative information to them."
"I called Equifax to check on this and in my credit report and they told me thet they did not issue such report and only is done when is requested by the company and that my credit so far was in good shape," Miguel said.
"Alienating responsible cardholders"
In her report on the credit market, Whitney recommended several solutions for the lending crisis, including a return to local lending and knowing customers' business histories, rather than relying on automated credit scoring systems.
The House of Representatives also passed a "Credit Cardholder's Bill of Rights" that would restrict particularly egregious billing and penalty traps last year in the waning days of Congress. The bill was put aside to focus on negotiations for the financial industry bailout, and no word has emerged as to when it will be taken up again.
Although restricting interest rate changes and penalties would help consumers pay their credit card bills faster, Whitney argued that any new legislation might cause more harm, as the lack of room to raise interest rates would cause banks to pull back even further.
In better times, consumers would be free to cancel any card that is causing them financial problems and shop around for better offers. But the wave of consolidation brought on by Wall Street's troubles has left even fewer banks standing, and consequently fewer options to get credit.
And canceling any card can potentially harm your credit score, as credit bureaus score accounts based in part on the length of time the borrower has used credit.
King said that she wasn't sure she could get better service anywhere else "because everyone, credit card companies included, is in such bad shape and no one knows what to do about it."
"But I will tell you this," she said. "Alienating responsible cardholders is not going to help anyone."
