How do you thank the customers that DIDN'T cause the crunch? Put the screws to them.

by Ron Daly 

Bank of America. Citigroup. American Express. What do they have in common? 

1. They received billions in bailout money (go here to see just how much)
2. They're jacking up interest rates on credit card users who don't pay the whole balance month to month.    

I've talked about my rates having been increased before (back in October - click here to read), this move doesn't surprise me...assuming a jump in rates is coming from a financial institution that hasn't taken in $25 billion in taxpayer money. They're getting most of my taxes this year anyway, and then they want to take MORE in the form of an increased rate? 

Let me clarify one point: we're not talking about people with poor credit. As outlined in the video at the bottom of this post, these are people who were rarely (if ever) delinquent and had a great credit rating. And these people, who have been paying off their balances, now face the burden of a higher balance because of their FI's inability to stay in the black. When is the consumer going to stop getting nailed to the wall by these companies and banks? 

Well, one consumer did, according to the Wall Street Journal (click here). She switched from her 13% card rate, up from 7.9% at her bank, to a manageable rate at a credit union. Sure, she'll still have to pay off her old balance, but she'll be paying the bank's lower rate - unless she uses her bank card and activates the higher rate. 

It's odd to me that a bank - especially one of the country's larger banks - can take money from the government and money from the consumer and not flinch. The other day, it hit me: banks are no longer concerned with credit scores! Seriously! Luckily, CUs are. And when the members of the "700 PLUS" - people with a credit score of 700 or higher - get tired of jacked rates with no benefits, credit unions need to take advantage of the opportunity. 

So, get your marketing campaign together now. Three steps: 

1. Explain to consumers that they have to write a letter to the bank by the deadline they specify for the credit rate switch or for opt-out. This letter is to declare that the consumer want to be locked in at their lower rate. 
2. Tell the consumer that they can NOT use the card once they've taken the initiative to get out of the boosted rate. If they do, they'll get the higher rate and whatever other fees the bank wants to throw at them. Tell the consumer that when they get locked in at this rate, the bank cannot raise it. They have to pay off the balance, but at the same rate they'd been paying. 
3. Inform them that you've got a low rate that you have no intention of inflating...at least not by DOUBLE their initial rate.   

Is there any credit union out there that wants new members that have 700+ credit scores and are looking for a new way to bank? Talk to me, people. 

The video below talks about the issue with specific examples. From the Today Show: 

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Comments

[Anthony Demangone]

Hi Ron,

I think part of this may be due to UDAP, a regulatory requirement that hits July 1, 2010. After that point, it will be very difficult to reprice credit cards portfolios. Many large institutions are now deep in the process of re-pricing everyone and putting those rates in place. After the deadline hits, repricing will be a pain in the neck.

[Credit Union Warrior]

I've had a Discover Card account for nine years now, and the same thing happened to me. 8.99% rate was raised to 14.26%. Credit score? 95th percentile. Late payments? Zero. Ever.

Not surprisingly, I have closed the account and paid off the small remaining balance. What gets me about this is not the effect it has on my family. Instead, I can't help but think about the families who can't afford to pay off their balances. To them, their bank has simply added insult to injury - making life during a painful recession even harder to manage.

A shame.