More Bad News for Credit Card Customers
In this period of increasing APRs and fees, two more major issuers, Discover and Bank of America, recently 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% will see their rates increase to the low to mid teens. Discover would not disclose the amount of its increase.
Citi and Capital One increased the interest rates to new customers on a number of their cards in February.
Experts say 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, which then became a 3% fee. With this rate increase, it will cost a Bank of America customer $200 to transfer $5,000, and also interest on the fee since the fee is rolled into the balance. This could keep consumers from transferring a balance to a lower rate card to help pay off their debt, as many cardholders have done in the past.
Credit card issuers are looking at some 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.
Experts say that in years past, banks increase revenue and their market share through easy lending, big credit limits, and luring away cardholders with generous terms for balance transfers but are now experiencing tough times and making changes that are hurting consumers. Federal regulations will eventually force issuers to make certain changes to benefit consumers. In the meantime, however, issuers are responding with increases, which hurts the cardholders whom they depend upon, experts say.