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Credit Card Reform: The Law of Unintended Consequences

Posted by POLIMOM in At TMV, Economy.
Aug 17th, 2009 | Comments

This is a (very) lightly modified version of a letter composed at my house this weekend. The only changes are the removal of my personal information and the name of the company.

FWIW — I thought very hard about going Galt with the whole credit card industry. Still thinking about it, in fact…

*****

August 15, 2009

To: My (former) Credit Card Services Company

Re: Your response to the Credit Cardholders’ Bill of Rights Act

Dear Sirs:

This weekend I received a document in the mail from you entitled “Notice of Change in Terms, Right to Opt Out and Information Update”. This document informed me that as of October 1st, you are increasing the interest rates charged for purchases to usurious rates–specifically to prime rate plus 21.99%. Using July 1, 2009’s figures, the rates to me will be 25.24% — an increase of nearly 10%.

I have no doubt that this notice was sent in response to the Credit Cardholders’ Bill of Rights Act recently signed into law, and to say that I am appalled and disappointed hardly begins to describe it.

Your company issued the first credit card I held as an adult, and I have stayed with you for over 30 years. In that time I have maintained my end of the relationship meticulously, never missing a payment, and never exceeding my limit. In recent years, as I have grown more prosperous, I have used the card less, preferring to keep the credit line available as a reserve against contingencies. Yet despite my long and excellent customer history, you have chosen to raise the interest rate charged to loan shark levels, as well as increasing the transaction fees for both cash advances and balance transfers to 5%.

I therefore must say “goodbye”.

Please cancel this card immediately and strike my name from your database. In particular, I am not interested in receiving solicitations to open a new credit card account. Over the years, I have become a much better credit risk than I was 30 years ago, having accumulated some assets, a track record, and a solid credit rating. I will take my excellent credit score and open a new credit card account with one of your competitors.

Sincerely,

Polimom

*****

So. Have you gotten your notice of government-enabled usury yet?

Cross-posted from Polimom Too.

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newtothis

Bravo!! I hope to do the same shortly.

AustinRoth

I have not missed a payment on any line of credit of any type for maybe 15 years or so. But, lately I have had card companies:

Cancel my card because I was paying it off every month and that makes me a 'bad customer'

Increase the rate for no reason (but not to 25%+!!)

Reduce my limit to the exact balance due (a few times)

One even tried to take away a lifetime rate on an existing balance transfer (at 2.99%!) because, well, because. That one they backed down when I threatened legal action.

tidbits

Having acquired my first credit card shortly after the Revolutionary War, it is very disappointing to see what has become of this industry. After years of easy credit, resulting in high default rates, the industry is now over-reacting and trying to compensate (for its mistakes in issuing cards to those who could not afford them) by putting it to their best customers.

I disagree that this is a reaction to the Cardholder's "Bill of Rights" Act. It began long before the law was enacted. Companies were discontinuing their credit card Business Line of Credit divisions, reducing limits to the balance due, or reducing limits on cards with no balance. And, they have made it more difficult to address credit card issues by actions like closing down Premier Banking divisions. Actually, the "Bill of Rights" was intended to be a response to these practices. Unfortunatly, it got heavily watered down thanks to industry lobbying and ended up looking more like a notice law (we'll tell you when we're going to screw you) than real consumer protection.

Polimom

Tidbits, the reason I attribute this to the "Act" is because of the delay in implementation. The legislation requires notifications of increases (**yawn** I agree), but also mandates no rate increase on existing balances. If they DO raise rates (duh), it only applies to new purchases.

Therefore, in the LOOoooong pre-implementation window left by Congress, the card companies are radically increasing their baselines on existing balances, since they won't be able to raise them later.

CStanley

I got the letter too. I also got one a while back from my mortgage company saying that they were closing our HELOC (zero balance, perfect payment record when we did use it years back for adoption expenses) which were were also keeping open for contingencies. We were given the option of paying for an appraisal and appealing the decision- which was ridiculous because our primary mortgage balance is so far below the value of the house that even with recent housing market corrections it's obvious that we still have way more equity in the house than the mortgage balance + HELOC amount would equal.

Anyway- point being, although I was tempted to write a letter back like yours and close the account, PM, I'm concerned about whether or not anyone is extending credit even to people with good credit ratings now. I haven't really looked into other options but I get the sense that no other cc company would be any better anyway. I guess I figure that as long as we keep a zero balance, it still may be better to keep the option of the ridiculously high interest rate on the line of credit, and of course only use it as a last resort.

Polimom

CStanley -- actually, competition is still alive and well in credit card land. My husband received a letter as well (we hold several separate accounts). His company was also raising rates -- to prime rate +11.25 %.

It's possible that, instead of "going Galt", I'll take a new card from his company instead... because there's a WORLD of difference.

tidbits

Polimom - Thanks for the clarification. I understand better now what you were getting at, and take your point.

CStanley

PM- that's good to know. I haven't researched options yet so I guess I'll need to do that.

shannonlee

Is it a bad idea to state the companies name? I hope not.

American Express sent me the same letter a couple of weeks ago.

GeorgeSorwell

Polimom--

Canceling a credit card often has a negative impact your credit rating, so be alert to changes in your score.

Also, I'm not really sure if sending a letter alone will be sufficient to cancel the card. You really ought to call them in a week or so to follow up.

Polimom

Hi George -- this came up on the Houston Chronicle thread as well. I'm copying my response from there:

You're right that in some cases, canceling a credit card can have a negative effect on one's credit score. However, if the card has zero balance *and* you're not carrying credit card debt, it won't have any effect at all.

If your credit card balance is zero, go ahead and close as many unused accounts as you want. As long as your credit cards are balance-free, it won't hurt your credit score a bit. So call those card issuers and cut away.

Link to source. More discussion on this topic can be found here

So you're right that this isn't necessarily something everyone can do with impunity. Bottom line for me, though -- with zero balance running on any credit card accounts anywhere -- is that they've earned my letter. And little pieces of plastic.

mustangdan

I got my letter as well. Same jump in interest as well. Ridiculous. MUST READ 3$%#$ JUST RELEASED insider info on credit scores. They found ways to get your score up to 800 at WWW.SLICKBUDGET.COM/CREDITSCORES.HTML It is a must see and we owe it to ourselves to beat the corporate greed keeping us down. Save thousands with lower interest from the tips. AND FREE STOCK PICKS TO GET SOME SERIOUS CASH.

mustangdan

I got the same letter with mine taken up. If i cancel, do I have to repay everything right then? MUST READ 3$%#$ JUST RELEASED insider info on credit scores. They found ways to get your score up to 800 at WWW.SLICKBUDGET.COM/CREDITSCORES.HTML It is a must see and we owe it to ourselves to beat the corporate greed keeping us down. Save thousands with lower interest from the tips. AND FREE STOCK PICKS TO GET SOME SERIOUS CASH.

pachigordo

Congratulations!!! I cancelled all my credit cards many years ago and don't regret living below my means as it helps me survive in difficult economic times when my consulting work varies greatly from month to month. We forget the interest costs over time in purchasing anything not paid off immediately. Please ignore all those people advertising to help you with debts, credit scores or mortgages - you are better off doing the work yourself and monitoring things carefully.

Most banks and large institutions treat people as fungible objects and act no better than loansharks. Those who wrote that letter to you couldn't care less that you had an emotional attachment to that institution for 30 years. I can get better interest rates and overall fairer repayment terms from my friend Guido in Little Italy back in Cleveland, Ohio. At least he has to compete with Mario down the street.

The only way citizens can get back at the financial industry that sucked up so much public money to bail them out of their own greed and stupidity, is to live without them. Over time, they will need to compete for business. I put investment money into places such as Charles Schwab and keep my business and personal banking at a local federal credit union. Best wishes to everyone in gaining financial freedom from your co-blogger in Phoenix - MP

joeinhell

At the end of June, my online bank statement showed an additional $2 in charges. When I contacted the bank, no one knew nothing. No one stayed on the phone long enough to help me.

With the aid of 50 mg of Valium and a dirty site that I know of that can get "anything." I bought a $101 pre paid card and used a public computer, but I got the bank president's name, his address, the location of his home on Google Earth, a list of all telephones billed to the residence, listed and unlisted, and the telephone numbers of all their neighbors. I called the wife's unlisted cell phone and explained my problem and that I expected her to get it right, then I read out the list of neighbors' telephone numbers.

Within an hour my cellphone almost exploded, my email address was chocked full of messages. I just checked and the unlisted cell phone number for the wife is "not in service," but I now have a personal banker that can take care of "ANY" problems that I have. Sometimes it helps to be crazy and make it personal.

creditcard

It's sorry to hear those with excellent credit scores and clean records like you have been victimised by the recent changes. It is unusual but it happens.

Nonetheless, you're doing the right thing as there are many credit card issuers would welcome you. Having an excellent credit score is a must eversince the financial crisis begin.

When an industry is regulated and controlled by the law, it somehow forced to revolve. The new law is necessary to promote fairplay to the cardholders. But if it means those with good and excellent credit rating are being affected as well, then there is surely room for improvement.

Dave

Polimom, GeorgeSorwell is correct. If you've had this account for a long period of time (you didn't mention if THIS was the account you've had for 30 years), closing it could have an impact your credit score.

One of the many factors that go into the calculation is the average length of credit history. Canceling an account that you've held for a long time can reduce that timeline and have an impact. You don't need a double whammy.

redbus

Pachigordo -

How do you make hotel reservations? You must at least have a debit card to do this over the phone. I'm not sure you can rent a car either with just a debit card. Usually they'll put a several hundred dollar "hold" on your credit card.

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