Consider this: you have a balance on your credit card and you've been diligent in paying the statements on time. Then BAM! Your credit card company double or even triple your interest rate for no apparent reason.
Welcome to the world of universal default:
When Ed Schwebel was whittling down his mound of credit card debt at an interest rate of 9.2 percent, the MBNA Corporation had a happy and profitable customer. But this summer, when MBNA suddenly doubled the rate on his account, Mr. Schwebel joined the growing ranks of irate cardholders stunned by lenders' harsh tactics. [...]
"I paid the bills the minute the envelope hit the desk," said Mr. Schwebel, who had accumulated $69,000 in debt over five years before the rate increase. "All of a sudden in July, they swapped it to 18 percent. No warning. No reason. It was like I was blindsided."
The practice, called universal default, started after a rash of bankruptcy filings in the mid-to-late 1990's and has increasingly become standard in the industry. While MBNA declined to comment on any specific customer's account, its general counsel, Louis J. Freeh, the former F.B.I. director, said in a statement that it was being prudent by raising rates when it had reason to think the risk of not being repaid had increased.
Lenders decided they needed to watch for signs of trouble elsewhere, like missed car payments, he said. In those cases, he added, there are only two logical responses: "We're not going to let you have this credit card loan anymore and we're going to say, 'Pay it off,' or we can say, 'You're now more risky; we're going to raise your rate.' "
If you think that the Fed lowering interest rates would bring down your credit card's interest, think again. Here's an interesting article by Patrick McGeehan about how regular people get squeezed by crazy high credit card rates: Link
See also Frontline's Secret History of the Credit Card - Thanks MoonCake!
And why are these credit card companies able to charge usury-level interest rates? Because they're incorporated in states that have repealed or don't have usury rates (From an old sister site of Neatorama)
Nah, it's just so much more fun to blame the victim. Ya get a much more smug satisfying sense of superiority.
That's poor money management.
Then I try to purchase something with my Citibank card. Won't go through. I go home, call, and I'm told they lowered my spending limit to a point BELOW what I had already put on the card, and ran my interest rate up to 32% (that is more than the Chicago Mob charges, by the way). No lie. They said it was because of something reported on my credit history. Nothing to do with Citi, but because of that student loan issue that I had already corrected. So now I'm looking at over the limit fees, other penalties, interest hike, etc. My payment goes from around $120.00 a month to more than $700.00 a month.
They tell me there is nothing I can do about for six months. It's locked in. Because it was something that came off my credit history. I spend that summer struggling to keep the card current. I pay hundreds every month and still can't get the card below the new lower limit.
Finally, six months later they call wanting to know when they are going to see my next payment. I tell them flat out, "Ya know, you totally f-ed me. I've been with you for twenty years; first card I got in college, never had a problem or issue with you and you F-ed me royal the first chance you got. And it was for something that had NOTHING to do with you. I have NO F-ING IDEA when I'm going to be able to pay you again."
Ultimately I bitched and moan enough at the little girl they put on the front line at the customer service center, who was completely unhelpful, argumentative, unsympathetic and uncooperative, to get bumped up past two tiers of supervisors to a manager who could actually do something. She waived all of the extra fees, interest and penalties and pretty much reset the clock to where it was before this whole mess happened.
I've since paid the card off and cut it up. I'm almost done paying my other card down to zero. I will NEVER deal with Citi again.
Lesson One, don't get yourself in that situation in the first place. Banks don't care. Not a bit. You're screwed. Loyalty means nothing to them.
Lesson Two, always push past the phone reps and get to managers, they often can and will play ball with you.
Not excusing their conduct, mind you (I used to work there in the summer & over vacations 15+ years ago, and didn't like them then), just wanted to make sure the time line was known.
The thing that burns me is, to get the loans you really need (cars, homes,) you need to "build credit" by spending a few years of making those small unnecessary credit card loans. Then everyone looks around and says "why has inflation skyrocketed? Why is the housing market in the toilet?" Wake up, people.
I've other friends who have had similar problems with them. They prey on people who have little or no credit. They are essentially legalized loan sharks.
Run, don't walk, from these idiots.
And if you pick your card issuer carefully, you can get one with no fees. Some even give kickbacks. My wife & I have a card that for every $2500 we spend gives us $50 back toward our mortgage principal. We buy most everything on that card, but we pay the balance every month and thus avoid paying anything extra.
While I would agree that people should be prevented from carrying huge balances on credit cards, I hate the thought of governmental intervention to make that happen. The feds would only screw it up worse than it is now. Anyone spending $69,000 he doesn't have on a credit card shouldn't have one, but should have the self discipline to know when enough is enough. And anyone finding himself in a predicament like that, should get a non-credit card loan to pay off the CC (and cut it up) then work like crazy to pay off the loan. You'll always have more control over interest rates with a standard loan.
You can't blame the CC company for making the service available; it's up to individuals to read the contracts and know what they're getting themselves into. Everyone is told up front when they sign the dotted line that the CC company can change the interest rates on a whim, and stories like this show what they will do when people abuse their credit cards. They make the rules, and they've got shifty lawyers who have nothing better to do than write those rules in a way that benefits the company. Caveat emptor.
You got asthma, maybe a birth defect or cancer or just an accident were the ambulance carted you off to the wrong hospital and the HIC refuses to pay up? Then it's pretty easy to accumulate debts and end up like Ed Schwebel.
I've never had one and I don't expect to change.
The Citibank people were nice. I said I could send $50 a month. They said, that's fine. Send what you can. I told the MBNA people I could send $50 a month. They said, that's fine, you owe $200 more than that. I begged to work out a payment plan. They would not accept anything less than my minimum due. I decided if they wouldn't accept less, what was the point of paying anything? And they kept calling to collect the balance, and I kept begging to send less, and they kept refusing to accept it. Eventually my account went into collection. Their collection agency called me at work. They said they would garnish my wages, they were sending attorneys to my office to serve me, they were calling my boss. All lies, and all, I learned later, illegal. I would sit in my office and cry when they called. What are you going to do, I would ask them, take away my $2800 used 8 year old Chevy Malibu and the $40 in my checking account? It was a horrible time in my life and was exponentially more horrible thanks to MBNA. They are pure evil. They are predators. Their management deserves to have horrible things happen to them. Never do business with them.
Banks cover their butts to the max. When things go bad for them, due to bad investments elsewhere, they take it out on YOU, and blame YOU for the fact that their CEO might have to hesitate for a nanosecond before chosing the solid gold Rolls Royce, rather than the sterling silver one.
Do yourself a favor: pay off your credit cards. Why be a slave to the banks?