Interest rates jump for credit cards

debt credit card

“You know, it doesn’t take a rocket scientist to figure out that if you keep borrowing and borrowing in order to consume now, eventually you crash and burn,” said Martin Eakes, chief executive for the Center for Responsible Lending.

Credit cards are an integral part of our entire society. Everything from on-line purchases, subscriptions, hotel reservations and itunes require credit cards. Mortgage companies seldom even look at a client without some kind of credit card history.

So are the credit card companies REALLY charging what the market can bear? Or have they become as critically important as banks but without any oversight, regulation or requirement to participate in stimulating the economy?

Honestly – credit card companies today are not competing with each other. They don’t have to. No one else is offering a similar service at a lower rate. It’s like a “consortium monopoly”. We cannot do without their services – and we cannot afford their services.

Credit card companies and banks are 2 of the same. Dig deep and you find them sharing the same bed sheets.All banks have huge amount of moneys to bank roll cards and i suspect there controlling interest. One would not be without the other. So lucrative it is that both banks and card company’ want to keep the level of fraud a secrete as not to undermine the system, hidden in your fees these are. With no real urgency to capture the perps as for the profit would make them look even worst in the public eye’s.

Interest rates jump for credit cards
By Andrew Martin and Lowell Bergman
New York Times

If you were surprised by a recent letter from a credit card company raising your interest rate to almost 30 percent, you are not alone.

Across the country, interest rates are going up, credit lines are being cut and a variety of new fees are being imposed on even the best cardholders.

Banks are struggling to make money in the credit card business these days, and consumers are paying the price.

The higher rates and fees reflect the grim new realities of the credit card industry — the percentage of uncollectible balances has hit a record even as a new law may further limit the cards’ profitability.

Banks began raising interest rates and pulling back credit lines about a year ago as delinquencies crept upward and regulators discussed reforms. As banks have become more aggressive in making changes, lawmakers have accused them of trying to impose rate increases before many of the new rules take effect in February.

A study by the Pew Charitable Trusts concluded that the 12 largest banks, issuing more than 80 percent of the credit cards, were continuing to use practices that the Fed concluded were “unfair or deceptive” and that in many instances had been outlawed by Congress.

In response to voter complaints, the House of Representatives voted recently to make the law effective immediately. The bill now goes to the Senate, where a vote has not been scheduled. The Senate Banking Committee chairman, Christopher J. Dodd, Democrat of Connecticut, meanwhile, is pushing legislation that would freeze interest rates on existing credit card balances until the law takes effect.

Whatever the starting date, the law makes it much harder for banks to change interest rates on existing balances, and requires more time and notice before a new rate can go into effect.

Higher risk
Banking officials say they have no choice but to raise rates and limit credit. Because of the new rules and the prolonged economic malaise, they say it is now far riskier to issue credit cards than it was just a few years ago.

“We sell credit; we don’t sell sweaters,” said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association. “The only way to manage your return is through the price of the product or the availability.”

The nation’s largest banks are scrambling to figure out a new business model that fits the new rules and current economic conditions. Banks made handsome profits over the last decade by charging high interest rates and penalty fees to a small group of customers who routinely paid late or exceeded their balances.

Already, banks are shifting to a model in which a smaller pool of Americans will be eligible for credit cards, and customers with cards will probably pay more for the privilege through annual fees and higher interest.

Meanwhile, the banks are in the process of shedding customers considered too risky. That means tens of thousands of Americans will no longer be able to splurge on Nike gym shoes or flat-screen televisions unless, of course, they have enough cash to pay for them.

Still, even consumer advocates have said that the banks were too quick in the past to give out credit. “You know, it doesn’t take a rocket scientist to figure out that if you keep borrowing and borrowing in order to consume now, eventually you crash and burn,” said Martin Eakes, chief executive for the Center for Responsible Lending. “That’s what we’re facing.”

Interest on credit card accounts has increased to an average of 13.71 percent, up from 11.94 percent a year ago, according to federal records.

Credit cards have long been a profit center, producing tens of billions in annual profits with a default rate that hovered around 4 percent, until the recession.
Banks are struggling to make money in the credit card business these days, and consumers are paying the price.

The higher rates and fees reflect the grim new realities of the credit card industry — the percentage of uncollectible balances has hit a record even as a new law may further limit the cards’ profitability.

Higher risk

Banking officials say they have no choice but to raise rates and limit credit. Because of the new rules and the prolonged economic malaise, they say it is now far riskier to issue credit cards than it was just a few years ago.

“We sell credit; we don’t sell sweaters,” said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association. “The only way to manage your return is through the price of the product or the availability.”

The nation’s largest banks are scrambling to figure out a new business model that fits the new rules and current economic conditions. Banks made handsome profits over the last decade by charging high interest rates and penalty fees to a small group of customers who routinely paid late or exceeded their balances.

You can read the full article at Elpasotimes

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