Thursday, October 30, 2008

Credit Card Interest Rates

This week the Federal Reserve cut the interest rate it charges on loans to banks to one percent. At the same time, I received notice from my credit card company that they are raising the interest rate on cash advances and over-draft lines to 20.99 percent. Huh?

I do not know my exact credit score. But given the absence of any blemishes on my credit report, ample lines of available credit, and almost no non-mortgage debt, I'm confident that it is at least 720 or higher. So I'm not a sub-prime borrower.

Sounds like highway robbery to me. With mortgage and home equity lending under the microscope, the big lenders can't squeeze homeowners. So now they are looking at ways to rape credit card holders to keep quarterly profits high.

This is not a good time to owe money. Some, such as those who have been in their homes for a while without tapping into home equity or running up credit card balances, will get through the current credit crunch virtually unscathed. New homeowners, those who have taken out big home equity loans in the last few years, and anyone with a lot of credit card debt won't get off so easy.

Folks that are behind with their credit card payments and/or over the limit are going to get hit hard. They'll see interest rates well over 20%, and if they are over the limit, fees averaging more than $30 per month. It's a no-win situation with very few practical options.

The credit card industry pushed hard for bankruptcy reform and finally got their way with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The bill has cut bankruptcy rates in half here in Georgia, even as the foreclosure rate hits historic highs. Why doesn't the bankruptcy rate mirror the foreclosure rate? Because BAPCPA made it so much more expensive to file that those most in need simply cannot afford to do so.

I know you're thinking that's a good thing, and that the cause is credit card abuse. Wrong. The vast majority of bankruptcy cases are the result of medical expenses, job loss, or divorce. The good news is that an unintended consequence of BAPCPA is that credit card companies are getting less in bankruptcy cases than before the legislation was passed. Careful what you wish for.

Current industry practices are abusive and predatory. The result is that a lot of people are going to run into problems paying off their credit cards, or even paying down their balances. Good for the economy? I don't think so, and that is just another reason I'm...

The Crotchety Old Man

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