Watch out: The rate on your credit card may go up: And your record may not be reason

Aug 10, 2008 (The Buffalo News - McClatchy-Tribune News Service via COMTEX) -- COF | Quote | Chart | News | PowerRating -- Aug. 10--The credit card industry has been under intense scrutiny and criticism over some of its fees and practices, but that hasn't stopped issuers from finding new ways to raise rates.

The latest annual card survey by Consumer Action found that four of the top 10 issuers will raise interest rates for reasons beyond a consumer's control, such as "market conditions," "the economy" or "business strategies." Those issuers are American Express Co., Bank of America Corp., Capital One Financial Corp. and Citigroup.

That's a new justification that goes beyond traditional mistakes made by consumers, such as not paying on time or becoming too risky. And it's already led to rate hikes at Bank of America and Capital One.

"Consumers should not need a crystal ball when they enter a contract," said Linda Sherry, director of national priorities at Consumer Action.

"When card holders accept the offered price, they don't know how 'market conditions' will impact the cost of carrying a balance that they took on at a much lower interest rate," she said.

Also, all of the top 10 issuers and 17 of the 22 issuers surveyed reported that they can still increase customers' rates or change terms at "any time for any reason."

Among the reasons cited were worsening credit scores, having too many credit cards or too much debt, having too many inquiries on a credit report, or having too high a debt-to-income ratio.

Ten institutions -- 45 percent of those surveyed -- said they would raise a customer's rates because of his or her payment record with other lenders, a widely criticized practice known as "universal default."

Some institutions said that means more than just missing payments, however. Issuers also look at customers' account history with their other products, such as checking accounts or mortgages at the same bank.

"All top five issuers write themselves a blank check to change rates," Sherry said.

Default or penalty rates averaged 26.87 percent among 38 cards -- up from 24.51 percent a year ago -- with HSBC Holdings the highest at 31.99 percent.

And once someone defaults, Sherry said, they might never get back to the original rate, or it may take six months to a year of good payment history.

Five banks -- American Express, First Command, U. S. Bancorp, Washington Mutual and Wells Fargo & Co. -- said they would reduce a customer's credit limit because of perceived risk. That includes a decline in credit scores, late payments and balances that get too close to the credit limit.

The consumer group also cited reports from consumers that some banks have lowered credit limits as balances come down, either keeping the card holder close to the limit or even putting them over the limit.

Overall, regular interest rates on 41 cards from 22 banks ranged from 6 percent to 22.75 percent -- both on Wells Fargo cards. Variable rates averaged 14.25 percent, while fixed rates averaged 11.82 percent.

Thirty-five cards, or 85 percent, had no annual fees, while 95 percent had late fees.

The survey, which has been done every year since the mid- 1980s, was conducted from Feb. 26 to April 9 by Sherry and two students from Virginia Institute of Technology.

Complete details are available online at the Web site: www.consumer-action.org .

jepstein@buffnews.com

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