New Year, New Rules, New Tricks

For many, the beginning of any year usually starts out with a lot of determination to improve their lives in some way. One person may want to lose a few pounds, another may want to change careers, and someone else may want to get rid of debt once and for all. Well this year, society will not be alone in the reformation process. On February 22nd, credit card providers will be required to modify some of their customary (read, sneaky) practices. Think of this modification as the credit card company’s “New Year’s Resolution.”

It’s not as if credit card providers had some kind of epiphany, though, and finally felt guilty about charging customers absurd amounts of money through fine-print fees. The Credit Card Responsibility and Disclosure Act, commonly called the CARD Act, is forcing their hand by mandating some much-needed regulations. For instance, the law will require credit card issuers to notify customers a full 45 days prior to changing an interest rate.

Creditors retaliate against the CARD Act

Most credit card providers had infantile reactions to the CARD Act. In short, they retaliated. Creditors have been increasing rates within a centimeter of legal limits ever since they knew the law was going to pass.

Imagine opening up your credit card statement to discover that the interest rate had suddenly jumped from 8.9% to nearly 20%. What?! This type of shocker would cause any consumer to be willing to battle a computer-operated phone system to reach an actual person who could help, because, clearly, this rate hike has to be a mistake! But when you finally reach someone with a pulse, you are told the interest increase is not a mistake, but only a consequence of “doing business.” Wow! That’s some pretty expensive business. The customer is supposed to believe that the measly 1% decline that Discover’s sales suffered in 2009 really set the company back that much?!

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Discover was not the only credit card provider looking to the card-user to recover lost revenue. There are similar shocking interest rate testimonies happening over at American Express, Capital One, and numerous others. In fact, Chase Bank is starting to become infamous for increasing rates by as much as 10%—just because.

Consumers react to creditors

As consumers, we get it. Credit card debt is unsecured, so it’s not as if a credit card provider can show up to our door and take back that XBOX 360 that we charged to our plastic. And granted, during an economic downturn, credit card providers are forced to find creative ways to generate more revenue before those inevitable delinquencies start to pour in. But consumers should also feel compelled to get creative during a recession. Many of us are struggling to find a way to meet our living expenses as well as pay our credit card bills. But unwarranted interest rate increases from the credit card providers only make it harder for us to meet those debt obligations, and just encourage the delinquencies that creditors are trying to avoid. The vicious cycle continues as sneakier credit card company behavior only leads to more and more consumer defaults.

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