Unexpected Bank of America Rate Hikes
Bank of America’s recent move angers many consumers…
It seems that in a tough credit market, credit card companies will do just about anything to maintain profits. One of the worst practices - jacking up interest rates even when a cardholder has never missed a payment - is common. Most companies blame these adjustments on changes in a consumer’s credit score. But the recent actions by Bank of America are downright appalling. Bank of America (BAC) has surprised cardholders with huge interest rate hikes - with no deterioration in their credit scores at all!
Letters were sent in mid-January notifying many cardholders that their rates were being more than doubled - to as high as 28%. No explanation for the rate hike was given, although fine print at the end of the letter, “Important Amendment to Your Credit Card Agreement”, gave an 800-number to call for the reason. Letters included an opt-out option that allows cardholders to maintain their current rate, if the card is no longer used. But to do so, Bank of America must be contacted in writing - otherwise rates on existing and new balances automatically rise.
Reasons for the Move
Betty Riess, Bank of America spokeswoman, confirms that some bank cardholders could be receiving rate increases for reasons other than declines in credit scores, such as running higher balances with their Bank of America cards or with other creditors. She says the increases are part of a “periodic review” that assesses customers’ credit risk.
The move is especially surprising since recent congressional hearings slammed credit card companies for raising rates on customers who pay on time. By law, credit card issuers can change terms any time they choose - as long as they give borrowers prior notice. Even so, JPMorgan Chase (JPM) and Citigroup (C) recently announced they would stop the practice of raising card rates based solely on FICO scores.
Analysts say the bank’s move is obviously aimed at shoring up profits. On Jan. 22 Bank of America reported a 95% decrease in fourth-quarter earnings due mostly to increases in loan-loss reserves for consumer credit, including rising card charge-offs and write-downs in mortgage-related securities. Bank of America faces another profit sinkhole with its pending acquisition of troubled Countrywide Financial (CFC).
Consumers are Angry
With over 40 million credit card accounts in the U.S., Bank of America has angered many consumers and complaints are growing on sites like My3Cents.com and Credit.com. Besides the obvious frustration of unexpected rate hikes, many consumers are especially upset because Bank of America is using internal criteria to assess their risk and raise rates - not credit scores which are accessible to anyone.
* For more information, see Business Week: A Credit Card You Want to Toss
