Wells To Increase Credit Card Interest Rates To Beat Change in Law « naked capitalism

Thursday, October 8, 2009

Wells To Increase Credit Card Interest Rates To Beat Change in Law

Wells Fargo is hardly alone in treating credit card customers badly. Whenever I run a post on credit cards, I get a raft of comments and e-mails about various bank misdeeds, which generally involve rate increases when the borrower is current and has not suffered a fall in his credit score. The other common complaint is a cut in credit lines for no apparent reason (well, save that the banks are trying to please Wall Street).

But consumers are nevertheless, correctly, galled. Banks are getting massive subsidies via the TARP, super-low interest rates, and a host of rescue facilities. And what do they turn around and do? Gouge customers, typically the ones who already have balances and thus are least able to pay higher charges.

Wells is either clumsy or brazen enough to implement its rate changes so as to merit coverage in Bloomberg. Although I have received similar complaints about Chase, Bank of America, and Citigroup, they apparently put their increases through surgically enough so as to keep them largely out of the media.

From Bloomberg:

Wells Fargo & Co. plans to raise interest rates on a majority of credit-card customers by 3 percentage points before federal rules limiting such increases take effect, a company executive said.

“This is something we’ve been contemplating for quite a period of time,” Kevin Rhein, group head of card services for the San Francisco-based bank, said today in a telephone interview. “We had just reached the point that we don’t think we can offer credit cards at the current pricing and keep credit flowing.”

Wells Fargo began advising customers this week that the change takes effect on Nov. 30. That’s a day before House Financial Services Committee Chairman Barney Frank wants curbs on rates and fees to become effective under the new U.S. credit- card law.

The story does note that most other card issuers put through increases much earlier.

More on this topic (What's this?)

'You Cannot Buy Groceries with Your House' (Financial Armageddon, 2/3/10)

How to Save and Make Money with Credit Cards (Saving to Invest, 10/9/09)

Two New Credit Card Rules Set to Take Effect (Stock Trading To Go, 8/19/09)

Read more on Credit Cards, Interest Rates at Wikinvest

11 Comments:

Credit Cards « Thinking Things Through says:

October 8, 2009 at 8:57 am

[...] via Wells To Increase Credit Card Interest Rates To Beat Change in Law « naked capitalism. [...]

Peripheral Visionary says:

October 8, 2009 at 9:26 am

Let me take the extremely unpopular side of this and posit that the banks have a choice between bad options. They should be under no obligation to maintain an unprofitable operation; and if they are losing money on their credit card operations, they don’t have an easy out. Instead, they have to choose between cutting credit lines (unpopular), charging higher fees (very unpopular), and/or raising rates (extremely unpopular.) Among those options, cutting credit lines is probably the most responsible, but they’ll get criticized in any case.

Of course, they should never have taken on so many credit card customers in such an indiscriminate way in the past, and for that they can rightly be criticized, and remain subject to criticism to the extent they continue to do so. But there is no Constitutional right to a credit card with a 0% rate and no fees, and banks should not be criticized for failing to provide a non-existent right that hurts their profitability.

Skippy says:

October 8, 2009 at 9:07 pm

You said…Of course, they should never have taken on so many credit card customers in such an indiscriminate way in the past, and for that they can rightly be criticized, and remain subject to criticism to the extent they continue to do so.

Nay it was not indiscriminate at all! The percentage solution proffered by a gentleman who’s name I can not remember or find again, lay-ed out a plan by which CC company’s lower their entrance threshold and capture individuals in revolving debt via late charges and triggering interest increases.

For a good time see link: http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

Some experts say the profitability of credit cards really began twenty-five years ago, when the banking industry successfully eliminated a critical restriction: the limit on the interest rate a lender can charge a borrower. Deregulation, coupled with a revolution in technology that enables the almost real-time tracking of personal financial information and the emergence of nationwide banking, has facilitated the widening availability of credit cards across the economic spectrum.

Millions of American families use their personal, general-purpose credit cards such as Visa, Mastercard, American Express and Discover to make ends meet; credit cards have been a discreet lifeline for families in financial straits.

But other consumers, like actor and author Ben Stein, use plastic purely for convenience. While it would appear that Stein — who says he charges a small fortune every month on his credit cards — is the ideal customer, in reality, he is what some in the industry call a “deadbeat.” That’s because he pays his balance in full every month.

The industry’s most profitable customers, the ones being sought by creative marketing tactics, are the “revolvers:” the estimated 115 million Americans who carry monthly credit card debt.

According to Harvard Law Professor Elizabeth Warren, the credit card companies are misleading consumers and making up their own rules. “These guys have figured out the best way to compete is to put a smiley face in your commercials, a low introductory rate, and hire a team of MBAs to lay traps in the fine print,”

Skippy…I used to be a sales Exec for a large parking lot company and the tactic is similar, get ratios of permanent to HR/Day parkers maxed out, then use your 30 day rollover contract to increase monthly fees by $50, if no one cancels repeat increase (I have seen increases of $300 before a cancellation), now after a few cancellations let this become the new norm and go after the HR/day people, rinse and repeat ad infinitum.

LeeAnne says:

October 8, 2009 at 10:22 am

maybe you know details of where the banks’ extraordinary profits are coming from? If you do, maybe you can provide them for us?

just a little addendum to your comment would be welcome.

Sing says:

October 8, 2009 at 10:52 am

Here is another part of Credit Card story – I received notice from Discover that they are defining the NEW way to calculate minimum balances – % of existing balance + Fixed $ fees + Any additional charges they might plan to apply. Financially it makes sense, but Why are they waking up NOW ?? Dont you think good credit card operations need to do that from beginning?

Give child a toy and take it back – he will surely have more tantrums.

Terry says:

October 8, 2009 at 11:30 am

The CARD Act took away the bank’s ability to price for risk and to assess fees on the customers that misuse their cards, so the banks have to up everyone’s rates and fees, eliminate more risky customers and cut credit lines to manage the risk. It will get worse, as losses mount, securitized card pools have to be brought back on the balance sheet and (more expensive)capital raised to cover the added assets, and interchange fees are cut, either through legislation or litigation.

Vinny G. says:

October 8, 2009 at 1:38 pm

Such scumbags! The only result is that more people will default. These moronic banks are digging their own graves. The’re all retards! Dr. Vinny G. is heretofore left with no option but to assign them a collective diagnosis of Mental Retardation on axis II, along with Narcissistic Personality Disorder, also on axis II (that’s the “shameful” axis)…LOL

Dr. Vinny G. — brilliant clinician and unstoppable think tanker of one, all liberally infused with excessive amounts of modesty…

Kevin says:

October 8, 2009 at 2:32 pm

I am tired of hearing about how the banks are evil for raising rates or cutting credit lines. If you don’t like it there is a simple solution: close the account. If you can’t close the account because you’ve racked up too much credit card debt then that’s your fault not the bank’s. You should have known that this could be a problem before you swiped the card. It’s time for people to grow up, stop crying and start taking responsibility for themselves.

Yves Smith says:

October 8, 2009 at 3:26 pm

Kevin,

You assume the card users with balances are individuals, by implication, irresponsible. Many small businesses cannot obtain credit lines from banks (too small to justify cost of due diligence) and thus use credit cards for seasonal and inventory financing.

No one would have regarded their costs as a % of sales as irresponsible, but they get hit along with everyone else. It is very well documented that credit cards are a key source for funding for small businesses, particularly startups. Credit cards are a far more important source of startup/young business funding than venture capital.
Skippy says:

October 9, 2009 at 2:32 am

I would add that both banks and many other industry’s actively pursue sophisticated means by which they capture individuals and groups and milk them for all they can…and laugh all they way.

skippy…company’s are allowed to fill a room full kids and pick their brains with the best psychologists money can buy increasing their bottom line, but when a president would address them via MSM everyone cries foul…I say send the little buggers back to the factory, whoops can’t do that anymore as it would take a job away from mommy or daddy there by decreasing their ability to buy the toy injected into their heads via MSM hurting the toy company’s stock and starting a cascade of stock failures resulting in a recession where their mommy and daddy lose their jobs, scaring the child for life, for the lost of said toy, after still working mommys and daddy got their kid one.

Evil nay..try malevolent, uncaring, blood sucking, narcissistic meg-la maniacs only bent on their own successes, its cool he goes to church on Sundays.

Steve Wilson says:

October 16, 2009 at 12:40 pm

I just got my WELLS FARGO credit card raised 3%. I am not crying or irresponsible. I just cancelled the card. No big deal. Wells Fargo makes enough money as is. A 3% increase is just pure greed. They fail to mention that the prime rate could go up on top of that. It can’t stay the way it is. Been down so long looks like up to me. I want to mention that an increase is based on the future for an item already purchased. It is buying something for a price and the seller coming back to ask for more. I would agree to the increase on future purchases but not past purchases. This is a rip off. Throwing money at problems that the economy has will not cure the problems we will always have if there are no jobs or manufacturing in America.

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