Transcripts

The Credit Card Interest Rate Increase Is In The Mail

JEFF YASTINE: American consumers are getting some unexpected news in the mail and they are not happy about it. Credit card companies have begun telling customers their interest rates are going up sharply, even on balances already owed. As Stephanie Dhue reports, a consumer's credit score could be the reason or there may be no reason at all.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: As consumers struggle with high debt, some credit card companies are now piling on. In some cases, companies are more than doubling interest rates on existing balances. It's not because consumers are paying late, but because of market conditions. Bill Frick is a Maryland state lawmaker. Today he introduced a bill that would prohibit credit card companies from arbitrarily raising interest rates for consumers in his state.

WILLIAM FRICK (D) MARYLAND HOUSE OF DELEGATES: I think most consumers think that if they pay their credit card on time and in accordance with the minimum balance that's required, they are safe from any increases in the rate, but unfortunately under a lot of agreements that's just not true.

DHUE: Federal lawmakers have also proposed legislation to ban the practice known as universal default. Consumer advocates say arbitrary rate increases can cause payment shock. For example, with a $5,000 balance at an 8 percent interest rate, if you made the minimum payments, it would take 10 years and $1,000 in interest to pay off. If the rate increased to 22 percent and you charged nothing new on that account, you'd pay $4,100 in interest and it would take more than 14 years to pay off. Consumer's Union Jeannine Kenney says the interest rate changes are problematic, especially if they are made retroactive.

JEANNINE KENNEY, SENIOR POLICY ANALYST, CONSUMERS UNION: These increases have huge impacts on consumers, even if they make the decision at the time of the rate increase that they're not going to charge anything else on that card. It has a real bottom line impact.

DHUE: The credit card industry calls the practice risk-based pricing and says it allows them to make credit widely available. In a statement the American Bankers Association said some of the proposals being discussed in the halls of Congress today would have serious, intended consequences and may make credit less available for low and moderate income families and more expensive for consumers in general.

Credit card companies may face even greater woes than regulation if consumers respond by tightening their belts and putting away their plastic. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.