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March 16th, 2009

So Much for Being a Good Customer

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We all know the swift and severe penalties credit card companies can place on delinquent customers. Now, even being a responsible customer won’t save you from feeling the effects of the credit card companies’ latest restrictions.

Despite paying their bills on time each month, many responsible cardholders are experiencing rate increases and cuts to their credit line, as well as being declined when they apply for additional cards.

Credit card companies say they have no choice. They must protect themselves against the number of customers who have either lost their job, or have had to scale back their payments due to the ongoing recession:

“So account changes like this are necessary for us to appropriately account for the increased risk of lending in an economic downturn, since these are unsecured loans,” she [Pam Girardo, a spokeswoman for Capital One] said.

An unsecured loan means there’s no house, car, boat or other thing a credit card company can quickly grab if a customer doesn’t pay up.

“Consumers should know exactly what they’re getting into when they sign up for a credit card — you agree to let the card company change your rules at any time,” said HSH Vice President Keith Gumbinger. It’s unfortunate, but in today’s society, credits cards are a necessary evil.”

Aware of the “unfair” credit card practices, lawmakers approved five significant changes to the way credit-card companies bill and charge cardholders (click here for a summary of each rule). “The rule will enhance public confidence in financial institutions and establish a level playing field for institutions that want to do business fairly without suffering competitive disadvantages,” said OTS Director John Reich. These five changes won’t go into effect until July 2010.

But critics of the changes say the new rules won’t help consumers the way they think they will:

“The rules will reduce credit availability and increase the price of credit,” said Kenneth Clayton of the American Bankers Association…

How should cardholders handle the increased restrictions? First, do your best to pay off your monthly balance on time. If you’re still subjected to the “unfair” regulations, some credit experts advise that you “Get the cards out of your wallet. Don’t use them.

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4 Responses to “So Much for Being a Good Customer”

  1. Rebecca Wilder Says: March 16th, 2009 at 4:03 pm

    Good one, Tim.

    More evidence of the credit crunch. It already started in residential mortgages, as tight lending standards seeped into the prime market. And now good credit card customers are seeing rate hikes.

    Imagine this situation: you pay off your credit card every month without regarding the level of interest, you lose your job and the credit card company raises your rate (mutually exclusive events of course), you run a balance since your disposable income decreased substantially, you find that your rate – cost of borrowing – is higher even though you paid your balance in full until then.

    Rebecca

  2. Tim Manni Says: March 17th, 2009 at 10:56 am

    I know, this is scary stuff in an environment where job loss is an imminent possibility.

    You’re right — the comparison to the mortgage market completely mirrors this scenario. It’s blocking out the qualified borrowers that carry these industries. Consumer spending will take an even bigger dip though if everyone cancels their credit cards. Not to mention what it will do to credit scores. I have to stop I’m starting to scare myself.

    Thanks for the comment, good to hear from you,
    Tim

  3. Zuni1 Says: March 18th, 2009 at 9:54 am

    Credit Card/ State Farm. Recently I put a credit limit on one family members card. I waned to keep them from spending over $1000 per month. Did you know that the card company does not stop the purchasing of any item when the card holder goes over the limit. That means that the limit is a
    joke. Instead the card company charges a fee for going over the limit. The best way to limit spending over a certain amount is to call of the phone and watch your family members p;urchases, and when the amount gets close to the limit you put on the card, put a security alert on that card, and no one can spend over the limit. So I decided to cancel that card after I paid the bill, and I asked to increase my credit limit on my other card. They wouldn’t give me additional credit because one time, I went over the limit that I had put on the card. Never mind that I have never been late in the past 20 years. I am going to send them a letter and tell them what I think of them, and I won’t be nice. Zuni 1

  4. RaiulBaztepo Says: March 28th, 2009 at 6:13 pm

    Hello!
    Very Interesting post! Thank you for such interesting resource!
    PS: Sorry for my bad english, I’v just started to learn this language ;)
    See you!
    Your, Raiul Baztepo

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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