Posted on 02/10/2002 1:34:34 AM PST by sarcasm
SAN FRANCISCO -- While millions of borrowers are basking in low interest rates, refinancing their mortgages and buying new cars, other consumers are watching their credit card rates climb further into the stratosphere -- to 30 percent and beyond.
Providian Financial Corp. recently raised the rate on its high-risk accounts from 23.9 percent to 29.9 percent, a move that threatens to drain thousands of dollars from financially strapped households during the next few years.
The strategy is part of the credit card industry's attempt to boost profits in a sagging economy. Lenders believe they can offset some losses by collecting more from borrowers who have been flagged as the most likely to miss payments.
The new rate at Providian, which is nursing an ailing loan portfolio, affects about $5 billion in outstanding loans nationwide. The San Francisco-based company said the 29.9 percent rate will apply to 3.3 million of the 18.5 million accountholders on its books as of Sept. 30.
"There are two ways of looking at this practice," said Robert McKinley, president of CardWeb.com, a Frederick, Md., research firm. "Lenders are either getting compensated for the risks they are taking or they are beating up on disadvantaged consumers in an effort to make more money."
Some of the consumers grappling with higher credit card rates are college students who got carried away with their first credit cards. Some are immigrants who haven't established credit records to qualify for the best rates. Others are trying to re-establish good credit after a past bankruptcy, or people who stopped paying bills after losing jobs in the recession.
Providian believes the risks posed by those customers justify the move, said Konrad Alt, Providian's chief public policy officer.
"People always have the option of paying off their balance and closing their accounts," Alt said.
Providian isn't the only lender imposing hefty finance charges at a time when many short-term interest rates are falling to their lowest levels in decades.
Atlanta-based CompuCredit Corp. charges 35 percent for an Aspire credit card issued to its high-risk customers. The 35 percent rate applies to about 12 percent of CompuCredit's loan portfolio, which stood at $1.8 billion as of Sept. 30, said Nancy King, director of investor relations.
Despite such increases, the average credit card interest rate nationwide stood at 14.41 percent in November, down from 16.57 percent at the start of 2001, according to CardWeb. That drop reflects the overall decline in interest rates, and credit card companies' efforts to increase business from their best customers by offering rates in the very low single digits.
After CompuCredit and Providian, CardWeb.com identified the next highest Visa and Mastercard rates as: 23.9 percent, Direct Merchants Bank; 22.9 percent, NextCard; and 22.9 percent, Sears. Other lenders might charge similar or even higher rates for certain high-risk customers.
Hilda Madera of New York says the 23.9 percent rate on her American Express Blue card makes reducing her $2,000 balance almost impossible.
A single mother who supports herself and two children on her $58,000 salary as a computer specialist, Madera believes credit card lenders have been taking advantage of her for years. She carries $23,000 in debt on six cards.
"You never really notice the rates until you start having trouble paying them off and then, it's like, `Oh my gosh, I can't believe this,' " she said. Madera has written several lenders seeking a reduced rate, so far without luck.
Someone help me out here, I'm having trouble understanding how they are taking advantage of her!
Agreed. These whiners keep blaming the banks for their credit card debt. These higher rates could actually smarten some people up...if not, so what?
May I suggest Debtor's Anonymous when she finally hits her bottom...
She picked the companies based on the given rates. The company gave her credit and then to arbitrarily raise the rates because they now want more profit is horse manure.
Yea but did the companies force her to use the card? I would really like to see what she has been charging before making any comments. My wife and I feel really bad that we have $4500 on a single card and it's mostly been for auto repairs, home repairs, etc... I can't imagine what it would be like with $26K!
Sure they can, they write all sorts of caviets in the fine print, but it doesn't make it ethical or right.
Having a credit card is a profound temptation.
Sure, that's how credit card companies make their money but credit card companies need to take some of the responsibility for giving out credit like candy. It's not like these companies don't have a detailed finacial history of each person when they sign up. They gave her credit at a given rate which wasn't some introductory rate, but a rate she had all reason to believe would stay about the same for the given economic conditions.
People think they can buy stuff without having to pay for it.
As far as I can tell, she has been paying for it. She is just in a category that the credit card companies know they can gouge her.
Nothing personal, but I'd like to see what she charged on it. Necessities for her kids perhaps? I doubt it.
I would like to see how you spend your money too and critique it, but it doesn't really matter.
And she did not force the company to give her credit and the agreed to rate.
Providian Financial Corp. recently raised the rate on its high-risk accounts from 23.9 percent to 29.9 percent, a move that threatens to drain thousands of dollars from financially strapped households during the next few years.
Providian Reports $481 Million Loss
After CompuCredit and Providian, CardWeb.com identified the next highest Visa and Mastercard rates as: 23.9 percent, Direct Merchants Bank; 22.9 percent, NextCard; and 22.9 percent, Sears.
NextCard trading halted; bank shut down
Methinks perhaps Providian and NextCard better call their creditors and try to renegotiate their interest rates....What? They won't listen? Imagine that...
I've always been puzzled at the term -- 12% fixed APR.
Sounds like an oxymoron to me.
Those who CHOOSE to use credit cards are not robbed. Why the heck aren't these parents forbidding credit card use like you are? There are many bad choices teens can make these days. This is merely one more.
The same choice any other adult has.
I went through a similar thing myself a few years ago. Had to default on one of my accounts. At the time, I partly blamed the card issuers for giving me credit lines beyond my means but they were adults who took a risk -- and so was I, albeit a young adult.
For some people -- me included -- sometimes the only way to learn a lesson is the hard way. I'm definitely better off for the experience.
"With higher 'minimum' payments, this would not occur and everyone would be better off."
False. People just borrow more to meet the minimum payments (that's what I did.)
There were also some lean months while I was paying down my debts that I was very grateful that the minimum payments were low. Many people with an unforseen and large immediate expense also benefit.
Law is a poor substitute for personal responsibility. If you do a better job than my folks did in inculcating financial savvy, your daughters won't go through what I did.
I now have very good credit, and low debt (actually, since last August, I don't maintain any balances and incurr no finance charges.) One of my credit cards often requires no payment at all, and is willing to let my balance ride. Who are you to say we can't do this?
The article does not contain enough information for that judgement.
Does sometimes happen though. I played hard ball with these guys while I was paying down my debt. One time an issuer raised my rate for a late payment. I didn't agree that it was late, so I dumped 'em. Another arbitrarily raised the rate despite no infraction -- so I called 'em, told them the rate was not competetive, and they changed it back. Another didn't do anything to me -- I simply called them out of the blue, told them their rate was not competetive, and they lowered it..
Once you get a handle on your finances the issuers are pushovers, because they are so starved for good borrowers.
But if you're really in trouble, your weakness is actually a negotiating strength: the more you owe, the less they want you default, since they won't get nearly as much from a collection agency.
Worked for Mexico... :)
BS, with you busybody nannies it is always personal, what difference would it make what she purchased? If you have a real job in America today (read not a government employee) there is a good chance that this persons spending habits supported your lifestyle.
I think better rates can be had from your local Shylock.
If I were you, I'd check that bill very closely. Just because they are not requiring that you pay a note doesn't mean that they're not still charging you a finance charge on the remaining balance. This is a common practice, and is very dishonest in my opinion. There is a line to be drawn where abuse of credit is theft by EITHER party. Increasing the rates charged on credit cards for NO JUSTIFIABLE reason should be challengeable in a court of law. Raising rates after ELEVEN reductions in the prime rate last year alone is criminal.
The article, almost nonchalantly, indicates poor Hilda Madera makes $58k and carries $23k of credit card debt.
Let's say hilda is bringing home 46k after taxes. Her $23k balance on her credit card is 50 percent of her annual take home. For this level of income, THIS IS AN INSANE AMOUNT OF DEBT! Hilda is way, way past the redline.
I may ignore facts, but they're not going away.
Credit cards are like a two-edged sword. One edge is power to purchase. The other edge is RESPONSIBILITY.
As for me, I avoid the damn cards as much as possible. I live within my means. I guess I'm luckier than most - a very good job, a nice house, nice car. There are many things I do without. That's the discipline.
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