You might not love your bank, but you may end up loving them even less now.
Looks like banks are getting so tight with their credit standards, that they’re even saying goodbye to customers—maybe you—who’ve been paying their bills on-time.
Well, it’s either goodbye, or take an even higher interest rate. Yes, you might see your rate jump from 18 percent to 22 percent, for things like making only minimum monthly payments, having too many loans, or having a high credit balance.
This is a bit of a shock, as I discussed with Fox’s Neil Cavuto yesterday, because it was the banks who got Americans on the credit card habit in the first place and wanted them to make only minimum payments.
Now, making just the minimum monthly payments may be the reason they decide to increase your rate.
As Russ Haven of the New York Public Interest Group told the New York Daily News: “The same companies taking federal bailout money with one hand are crunching cardholders with the other—and cardholders are the taxpayers who are bailing them out.
What gives? Well, banks are trying to clean-up their balance sheets and keep their “credit ratings” intact (just like our own individual credit rating). One way to do that is to get rid of the bad apples—and even those just mildly bruised—to have only the best customers remaining. American Express, you may have heard, has been offering $300 to customers to close their accounts.
The other reason is that many banks find that customers making just minimum payments or taking on too many loans may ultimately find themselves unable to make payments at all. So, the higher interest rates give them some financial cushion should they ultimately have to write-off that customer’s debt.
What can you do? First, you can decline the higher interest rate. But for now, you don’t have much time. Banks are only required to give you a fifteen-day notice of a rate hike (look for a notice with your credit card statement.(Also, read: Five Ways to Dig into the Fine Print Without Getting Lost). You can decline the higher rate by sending a letter in writing saying you decline it and will continue making payments on your remaining balance. Warning: stop any automatic payments to your card because if they continue, that could be construed as you accepting the higher interest rate.
You’ll also be glad to know that in the middle of next year, new laws go into effect that prohibit banks from increasing your rate in the first year you have a card. After that, they’re required to give you a forty-five-day notice.
What do you think? Is this good if you’re a shareholder in JP Morgan, CitiGroup, Bank of America or Capital One? Share your thoughts in WeSeed’s Financial Stock Market.
By Jennifer Openshaw, co-founder and president of WeSeed
Photo courtesy of WeSeed