Changes made to credit cards add up

By Carrie Teegardin

The Atlanta Journal-Constitution

When the next credit card statement arrives in your mailbox, there’s a good chance you will find a surprise. And it’s probably not a pleasant one.

With new federal rules set to hit credit card companies in February and a high unemployment rate making consumers a risky bet, card issuers are socking even their best customers with significant changes in their accounts.

Interest rates and minimum payments are rising and credit limits are being slashed.

“We are seeing many, many card issuers increase rates to the 27 to 30 percent range,” said Dick Reed, a manager for the debt management team at Consumer Credit Counseling Service of Greater Atlanta.

For people who carry balances on their credit cards, Reed said, the changes are “creating havoc with their budgets.”

Jesse Patterson Jr., a 72-year-old Atlantan, said he had always paid his two Bank of America credit cards on time. But he said the bank upped his rate to 29 percent months ago and he has been unable to get a reduction. Patterson said he owes $12,000 on a business card and $19,000 on a personal card.

The change hiked his monthly minimums to about $1,300. “I’m upset,” Patterson said. “They’re robbing the public.”

Patterson said he plans to pay off the cards, but the increase led him to pay late recently for the first time.

The ratio of credit card debt that cannot be collected generally tracks the unemployment rate, industry experts said, and has risen to about 10 percent.

Decreases in credit limits aren’t the only challenge for consumers. Some credit card issuers are also dramatically increasing minimum payments. Chase bank this year upped minimum payments for some customers from 2 percent to 5 percent of the outstanding balance.

“Chase has brought us a lot of clients,” Reed said. “People just can’t afford that.”

The average consumer seeking help this year with debt and budgeting at CCCS carried unsecured debt, usually on credit cards, of $28,000. CCCS, a nonprofit organization, provides free counseling for consumers needing help with mortgages, debt and budgeting.

Credit card companies started making widespread changes in accounts about a year ago as the economy faltered. The changes came as a shock to customers with perfect payment records and as an extra burden for consumers who had lost their jobs.

“The credit card company will not be your friend or help you,” said Ed Mierzwinski, a credit card expert for U.S. PIRG, a Washington consumer organization. “In fact, they will try to hurt you.”

The banks say that the changes are necessary because of the dramatic increases in risk. “By and large the industry is not profitable,” said Peter Garuccio, a spokesman for the American Bankers Association.

But recent changes in accounts have raised questions about whether credit card companies are trying to make adjustments before the February effective day of the credit card reform law passed by Congress this year.

In the past, credit card issuers could change the terms of an account for any reason and with short notice.

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 will change that. Banks will no longer be allowed to increase interest rates on existing balances if a customer is paying on time. The law includes a host of other reforms, including longer notice on changes, clearer disclosure statements and limits on cards to consumers under 21.

While the bulk of the new rules become effective in February, the first phase of reforms is already in effect. It requires card issuers to give consumers 45 days notice of a change in terms.

It also requires companies to offer consumers the right to close an account and pay off the card at the lower rate.

Consumer advocates say it’s crucial for customers to read the notices they get from their credit card companies so they are aware of changes and don’t miss the window of opportunity to negotiate with the lender or to close an account before new terms hit.

Reed, of CCCS, said closing an account can be difficult for consumers who need credit cards for business purposes, especially for travel. “They need to have some credit cards to keep going, but it’s awfully tough to do it with that high interest rate,” he said.

The U.S. House voted this month to speed up the effective date of reforms to protect consumers from widespread rate hikes on current balances. The Senate has not yet approved the bill.

The industry strongly opposes expediting reforms, saying it needs time to adapt its systems to comply with the changes. “It’s impossible to do it in short order,” said Garuccio, of the bankers association.

The industry warned that the changes would reduce access to credit and lead to higher rates.

That has Marion Rosiello worried. She has been able to manage thousands of dollars in personal and business credit card debt through balance transfer offers that have allowed her to keep her rates low.

But Rosiello, who lives in DeKalb County and runs an engraving company, said the offers aren’t coming in like they used to. She’s concerned that she will get hit with increased minimum payments and higher interest rates that could eventually drive her into bankruptcy.

“I’m very worried about it,” she said. “I can’t live without my credit cards because of my business.”

Rosiello, 66, said some provisions in the act are helpful. But she said that as a result of the law, banks are not offering as many low-rate balance transfers and they are raising minimum payments. The new law doesn’t address those practices. “Congress ignored the inevitable consequences of this act in favor of political expediency,” she said.

Rosiello said she is playing a “hopeful game” that the economy and her business will pick up, allowing her to keep up with her payments.

Industry representatives said the vast majority of changes to accounts are being forced by the increase in risk in the marketplace, not in anticipation of the new law.

Bank of America has stopped changing interest rates on accounts, except when a consumer misses two or more payments within a year, said Betty Riess, a company spokeswoman.

But Riess said Bank of America continues to adjust credit limits and close inactive accounts. “That’s nothing new,” she said. “We monitor accounts for risk and may adjust customers.”

Riess said the company is testing imposing an annual fee on a tiny fraction of its accounts. “The objective there is to evaluate customer reaction,” she said.

Industry experts expect a broad range of new strategies as the new CARD act limits past practices. Annual fees might become more common. Variable rate cards are expected to be the norm instead of the exception. The number of cards that offer rewards might shrink.

Scott Talbott, head lobbyist for the Financial Services Roundtable, an industry group that represents banks and insurance companies, estimated that consumers will lose access to $10 billion to $15 billion in credit.

But he said the good news for consumers is that there are 6,000 credit card issuers across the country. “There is a lot of competition out there,” Talbott said. “As this market tightens up they will start to become more competitive.”

Advocates say that consumers need to be especially mindful as they pull out the plastic for holiday shopping that they are subject to the whims of their credit card companies until many of the new protections kick in.

“Remember that until February, or until Congress acts sooner, credit card companies can still raise the rates on money you have already borrowed,” said Nick Bourke, manager of the Safe Credit Cards project at the Pew Charitable Trusts.

Changes

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 was signed into law in May. It requires sweeping changes in the behavior of credit card issuers. Here’s a summary of the law.

Provisions in effect as of 
Aug. 20:

● Companies must provide longer, written notice of increases in interest rates or changes in other terms and inform consumers of their right to cancel before new rates take effect.

● They must send statements 21 days before due date.

Provisions that will take effect in February, or earlier if Congress accelerates the law:

● The law prohibits increases in interest rates on debt already incurred, unless a customer pays 60 days late.

● It prohibits over-limit fees unless the consumer authorized over-limit transactions.

● It requires payments beyond the minimum to be applied to balances with the highest interest rate.

● It prohibits early morning deadlines on the due date for payments.

● It restricts access to credit cards to consumers under age 21.

Tips for handling credit card accounts

● Carefully read credit card statements and notices since issuers are making changes.

● If you get hit with a large increase in an interest rate, consider declining the new rate in exchange for closing the account. Make the request before the new rate kicks in.

● Monitor changes in credit limit and try to keep balances below one-third of the limit. Credit scores take a hit when a consumer uses more than a third or a half of the available credit.

● Use balance alerts and due date alerts to make sure you abide by the terms of your card. Make payments as early in the cycle as possible.

● If changes in your interest rate or minimum payments are wrecking your budget, review your accounts with an expert at Consumer Credit Counseling Service of Greater Atlanta. CCCS clients who enter a debt management plan can arrange interest rate reductions to 6 percent to 10 percent. CCCS offers around-the-clock help by phone at 1-800-251-CCCS or at its Web site, www.cccsinc.org.

Got a tip? Do you suspect government waste, a consumer rip-off or a threat to public safety? Tell us what you want investigated. E-mail ajcspotlight@ajc.com or call 404-526-5041.