Interest Rates on Credit Cards Are Going Up. Won’t That Further Hurt Average Joes?
Question: About four weeks ago, my Chase credit card informed me that the interest rate on my current balance was changing from 5.99 fixed to 10.99 variable so that Chase could “maintain profitability” on my account. I knew that I couldn’t have given cause for this change.
So I called and Chase confirmed that I was not at fault and that it was all due to the “economy.” I tried to point out that sudden increases of this size, if executed on a wide enough scale, could cause the next national economic disaster, but that didn’t get me anywhere. And the two options Chase gave me to shoot myself in my financial foot were ridiculous, so I said that I would make other arrangements.
Now it turns out that this practice is widespread and some people’s rates are going to 20 percent and beyond. It seems to me that a sudden, unexpected 10-point interest rate increase on purchases made last year is not going to help struggling retailers. A sudden increase in a person’s expenses that could add up to thousands of dollars a year in additional interest payments isn’t going to help with the foreclosure problem. In my personal situation, this increase was annoying and not disastrous, but others will not be so lucky.
To make matters worse, Citibank is involved in this practice, too. Taking government bailout money for one part of the organization while squeezing out more interest from customer/taxpayers in another part seems like a public relations disaster to me.
Am I being a Chicken Little over this thing? Or is the sky actually getting ready to come crashing down?
Paul Solman: There are so many things to be Chicken Little about in this environment, Stephen, that I’d simply say: Welcome to the henhouse.
Your experience is, as you suspect, being replicated far and wide. In the lingo of finance, risk was for years underpriced. Now the pendulum has swung the other way. Borrowers are the victims as risk is being perhaps overpriced. Companies are having to pay extremely high interest rates to borrow. So are consumers like you. It’s certainly putting a further damper on the economy. Which is why the government has now created programs to provide money to help support the consumer lending market.