More Bad News for Credit Card Customers
In this period of increasing APRs and fees, two more major issuers, Discover and Bank of America, have just notified some of their cardholders that they will receive rate increases in June. In addition, Bank of America is raising the fee for balance
transfers to 4% from 3%.
Bank of America says credit card customers who carry a balance and have interest rates below 10 percent will see their rates increase to the low to mid teens. Discover would not disclose the amount of their increase.
Citi and Capital One increased the interest rates to new customers on a number of their cards in February.
"Bank of America's move to increase the fee on a balance transfer could set a precedent in the industry. A few years ago, most issuers had a cap on the fee for a balance transfer of $50 to $75. Then, this moved to a 3% fee. Now we wouldn't be surprised if other issuers follow and make 4% the standard fee for a balance transfer," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "It will cost a Bank of America customer $200 to transfer $5,000. Since the fee is rolled into the balance, you will also have to pay interest on this fee. This is bad news for consumers because transferring a balance to a lower rate card is one of the options for lowering their interest payments and paying off their debt."
Credit card issuers are looking at some very concerning statistics. Last week, The Federal Reserve released numbers to show that borrowing on credit cards is down by 9.7%. Currently, issuers are in the process of releasing first quarter reports that will show a continued increase in delinquencies that are approaching 10%.
Issuers seem to be responding to these losses by increasing rates and fees, as well as making changes to credit card terms that put the squeeze on or even squeeze out cardholders.
These are just the latest changes during an active first quarter where some issuers have tightened reward offers, reduced or eliminated balance transfers, increased interest rates, and added foreign transaction fees.
"For years, these banks fattened their revenue and grew their market share through easy lending, big credit limits, and luring away cardholders with generous terms for balance transfers," says Hardekopf. "Suddenly, they are experiencing some very rough waters and they are making changes that are hurting consumers.
"Unfortunately, we have not reached the end of this cycle. Issuers are losing money and federal regulations will eventually force them to make a few changes that will benefit the consumers. In the meantime, issuers appear to be responding with increases everywhere they can, which penalizes and hurts the cardholders whom they depend upon," says Hardekopf.
transfers to 4% from 3%.
Bank of America says credit card customers who carry a balance and have interest rates below 10 percent will see their rates increase to the low to mid teens. Discover would not disclose the amount of their increase.
Citi and Capital One increased the interest rates to new customers on a number of their cards in February.
"Bank of America's move to increase the fee on a balance transfer could set a precedent in the industry. A few years ago, most issuers had a cap on the fee for a balance transfer of $50 to $75. Then, this moved to a 3% fee. Now we wouldn't be surprised if other issuers follow and make 4% the standard fee for a balance transfer," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "It will cost a Bank of America customer $200 to transfer $5,000. Since the fee is rolled into the balance, you will also have to pay interest on this fee. This is bad news for consumers because transferring a balance to a lower rate card is one of the options for lowering their interest payments and paying off their debt."
Credit card issuers are looking at some very concerning statistics. Last week, The Federal Reserve released numbers to show that borrowing on credit cards is down by 9.7%. Currently, issuers are in the process of releasing first quarter reports that will show a continued increase in delinquencies that are approaching 10%.
Issuers seem to be responding to these losses by increasing rates and fees, as well as making changes to credit card terms that put the squeeze on or even squeeze out cardholders.
These are just the latest changes during an active first quarter where some issuers have tightened reward offers, reduced or eliminated balance transfers, increased interest rates, and added foreign transaction fees.
"For years, these banks fattened their revenue and grew their market share through easy lending, big credit limits, and luring away cardholders with generous terms for balance transfers," says Hardekopf. "Suddenly, they are experiencing some very rough waters and they are making changes that are hurting consumers.
"Unfortunately, we have not reached the end of this cycle. Issuers are losing money and federal regulations will eventually force them to make a few changes that will benefit the consumers. In the meantime, issuers appear to be responding with increases everywhere they can, which penalizes and hurts the cardholders whom they depend upon," says Hardekopf.
