Credit card companies piling on fees, raising rates ahead of new federal rules

It appears that credit card issuers are insisting upon exercising their right to abuse their customers in the name of higher profits. A survey of recent activities by the top eight credit card issuers reveals that since the Federal Reserve announced rule changes designed to curb unfair credit card industry practices last December, the companies have implemented even more onerous practices, raised interest rates more aggressively and increased the number of fees that they can impose on their customers.

The Center For Responsible Lending (CRL) released its findings on Monday and according to the report, Citigroup (C), Bank of America (BAC), J.P. Morgan Chase (JPM), Capital One (COF), HSBC (HBC), Discover (DFS), American Express (AXP) and Well Fargo (WFC) have each increased interest rates on existing balances for many of their account holders on an "any time, any reason" basis within the last six months. This practice will be illegal under the new Fed rules which take affect in July 2010. The CRL estimates that at least 10 million card holders have been affected, and some have seen increases of 10 percentage points or more on their existing rate at a time when many consumers are having trouble staying afloat.

"This shows that they are trying to get as much money as possible before the rules change," said Kathleen Day, a spokesperson for the center.

Day said the companies were "revving up" practices that they know are unfair. The companies fear their revenues will be affected when the practices are banned or curtailed after the Fed rules take affect. Legislation moving quickly though Congress could also put a damper on revenues. The result is that the companies are hitting their "best" customers -- those that have been able to continue to pay even as the recession has worsened -- with additional fees and charges to offset lost revenues when these practices are outlawed, and to hedge against losses from possible credit card defaults as the recession continues.

"New rules have to be put in place sooner rather than later because we see how the industry is reacting," said Day.

The CRL report highlighted several changes that top credit card issuers have made that are adversely affecting consumers. Perhaps the most onerous practice was put in place by American Express, which Day said has started charging some cardholders three percent of their balance as a late penalty instead of a fixed fee. With this change, a consumer with a balance of $5,000 would be subject to a $150 late charge instead of the $39 most companies impose. "Going to a percentage of available balance is pretty steep," said Day.

The report also said two of the top issuers have raised balance transfer and cash advance fees to an unprecedented level of four percent per transaction.

Several issuers have shortened grace periods between the issuance of a bill and the assessment of a late fee. The new Fed rules require longer grace periods.

And most credit card issuers have broadened the definition of over-the-limit, returned payment and convenience-check fees so that more customers are required to pay.

All of these practices would be eliminated under the new legislation. "Nothing that they are doing is new, but it's more of the same and it's worse," Day said.

The report did point out that some credit card issuers have taken steps to implement a few of the changes the Fed rules will bring, but on the issues that save consumers the most money, there has been no progress.
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