Interest rates rise for lovers of plastic

CHARLOTTE, N.C. -- When Brenda Fishkin got the letter from Bank of America last month, she thought it might be a joke.

The bank said it planned to almost double the interest rate on her credit card, from about 13 percent to 24.99 percent.

Fishkin, 60, couldn't figure out what she'd done to incur the higher rate.

She had never been late on a credit-card payment, just refinanced her home at a lower interest rate, and just been rewarded by her credit union with a lower rate on her credit card there, she said.

"Trust me," said Fishkin, who lives with her husband in Dallas, N.C. "I wouldn't be aggravated if I were a late customer and I deserved it."

Fishkin's displeasure is shared by hundreds of people who started filling up online-message boards recently with complaints that issuers, including industry leader Bank of America, raised their credit-card rates without explaining why.

Those increases come at a time when many consumers expected their card rates would fall, since the Federal Reserve began cutting the federal funds rate in September. That rate is indirectly tied to the rate of most credit cards.

Card issuers such as Charlotte, N.C.-based Bank of America usually give themselves broad authority to change customers' interest rates -- a right they include in the small type of the agreements that cardholders accept.

Some consumers and analysts speculate that Bank of America, which saw profits all but disappear in the fourth quarter, is trying to squeeze money out of its credit-card users to make up for disappointing earnings.

Tighter standards

And a January survey by the Federal Reserve found that more banks are tightening standards for approving credit-card applications.

It's an indication that issuers fear the defaults plaguing subprime mortgages will spread to other loans.

Curtis Arnold, founder of U.S. Citizens for Fair Credit Card Terms, said he's also been hearing complaints of unexplained credit-card rate increases from customers of JPMorgan Chase.

But it seems like Bank of America has been "more aggressive than some other issuers about repricing accounts," said Arnold, whose Little Rock, Ark.-based group runs the CardRatings.com Web site.

Bank of America spokeswoman Betty Riess said the rate changes are "business as usual."

She said only about 6 percent of Bank of America's 40 million credit-card customers saw a rate increase in 2007.

A little more than half of those resulted from customers falling behind on payments or going over their limits.

Still, that leaves about 1 million Bank of America customers who were faithfully making their credit-card payments but were hit with higher rates anyway.

Riess confirmed that Bank of America can change a customer's credit-card rate based on "external credit criteria."

That means customers who default on loans from other lenders or do anything that might lower their credit score can be slapped with a higher interest rate on their Bank of America card, even if they've never missed a Bank of America card payment.

Consumer advocates say that's unfair. Riess says it's meant to benefit consumers.

"This enables us to really look at the risk of an individual account, so accounts that are less risky receive a lower rate," she said.

Any rate increases, she said, have a good reason behind them: "We do a thorough analysis before we make a decision."

In letters, which were seen by or described to The Charlotte Observer, Bank of America told customers they could lock in their current rates if they sent the bank that request in writing and agreed not to use the card anymore but simply to pay down the balance.

If they wanted to keep using the card, they'd have to agree to the higher rates.

Questions remain

Fishkin and others say they called the bank to ask why their rates had been raised; they couldn't get a straight answer.

Fishkin said she has a balance of about $12,000, which is close to her limit. It's largely related to moving expenses; she and her husband recently relocated from Florida.

Holley Pridmore of San Antonio said she's had a Bank of America credit card since 2002 and has never been late on a payment.

But the bank recently increased her rate from 15.24 to 23.99 percent.

Pridmore, 49, pulled her credit history and called the bank.

"If you can find a late payment in our entire history, I'll pay you $100," she told the customer-service representative.

"He said, 'That's not really the point,' and I said, 'Since when?' "

Credit cards are one of the most profitable lines of business for banks because they can charge high fees while incurring little overhead, said Rob Thompson, policy advocate for the North Carolina Public Interest Research Group.

Bank of America's card-services unit generated about $3.8 billion in profit last year, about one-fourth of the company's net income of $15 billion.

The bank's Charlotte-based rival, Wachovia, changes credit-card rates based on customers' history of paying their Wachovia card, not on other financial activities, said spokeswoman Jennifer Darwin.

"The reason we do that is because many of our [credit-card] customers have other relationships with Wachovia," Darwin said. "We want to maintain those good relationships."

Wachovia is a much smaller player than Bank of America in the credit-card arena.

Credit-union option

Pridmore, the Texas resident, has other accounts at Bank of America. Last week, she went to a credit union to ask about transferring them.

This month, U.S. Rep. Carolyn Maloney, D-N.Y., introduced the Credit Cardholders' Bill of Rights Act of 2008 (H.R. 5244).

The bill would ban credit-card issuers from raising customers' interest rates if they default on unrelated loans.

It would also, among other things, require card companies to give consumers 45 days' notice of most rate increases and prohibit them from retroactively raising interest rates on old purchases.