Attack of the Ridiculously Over-Funded Bank

FADE-IN: INT. FOYER OF RANKIN NAASEL HOME – MEDIUM SHOT KENRYA RANKIN NAASEL – EARLY EVENING
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KENRYA RANKIN NAASEL, age 27, walks from the front door of her New York City apartment to the table on the opposite wall, mail in hand.
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CLOSE-UP – ENVELOPE
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The envelope is from Bank of America, addressed to Kenrya. We SEE KENRYA’S THUMB slide under the flap to rip open the envelope and pull out the letter within.
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CLOSE-UP – KENRYA’S FACE as she reads the letter.

KENRYA (yelling)

You’ve gotta be fucking kidding me!

She throws the letter to the floor and runs to her laptop.

And, scene! Sounds like the beginning of a high-octane, tent-pole summer flick, right, lol? Well, that’s exactly what played out in my apartment Monday. But what pissed me off enough to cuss at an inanimate object like a crazy person?

Bank of America nearly doubled my interest rate on my credit card! Yup, my APR for “new and outstanding purchases” jumped from a fixed 5.9% to a variable 11.65%. Not because of late payments. Not because of spending beyond my limit. Just because of a “change in our business practices.” This from the bank that was awarded $25 billion (billion with a “b”) in bailout funds earlier this year.

And I’m not alone. The Consumer Action 2008 Credit Card Survey found that 77% of credit issuers answered yes to this statement: “Can you increase my APR or change my terms ‘any time for any reason’?” When asked why they might raise rates, “market conditions” was listed by many companies. Translation: Business is bad, so we’re going to charge you more for credit—even on the stuff you’ve already bought.

Of course I could have it worse; many folks have seen their credit limits slashed, had their accounts closed and had been stuck with universal default rules. (Universal default is a policy that says if you are late by one day on one payment to one creditor, all your creditors can choose to raise your interest rate. The average adjusted rate? 26.87%.)

So what can we do as these failing banks pick our pockets coming and going? A few things, actually:

  • Just say no. BofA actually listed a provision by which I could call in and “reject” my APR “amendment.” The catch—if I ever use my card again, the rate will go up automatically. I made the call so that the balance I’m carrying wouldn’t be subject to the new rate. Once I pay it down, I’ll use the card as cash only, paying it off each month the way I’m supposed to, so the APR won’t matter to my bottom line. (For the record, my balance is from some unexpected dental work!) If you get an APR adjustment notice, read the fine print to see if your bank will let you reject the increase.
  • Keep it open. If you decide to stop using a card, don’t close it. This is a common mistake people make, one that can adversely affect your credit score. How? A full 30% of your score is determined by the percentage of your available credit that you’re currently using. So if you’re using 50% ($2500) of your total available credit of $5000, and you close a card with a $1000 limit, you’ve just upped your usage to 62.5% ($2500 of $4000) of your credit. Not a good look. Just cut up the card and forget the account exists. Your score will thank you.
  • Transfer your balance. If you can’t pay it down, find another card with a lower rate. They do exist, even if it just has a lower introductory APR—it’ll buy you some time to pay off your balance. Check out creditcardclients.com to find the best card for you.
  • Pay that bad boy off. Send in as much as you can afford to each month and step away from that abusive relationship.

The good news: Congress passed a bill last December that will limit some of the credit card drama: Universal default (for payments that are late by fewer than 30 days), retroactive interest rate increases and automatically applying payments to the balances with the lowest APR will all be illegal. The bad news: As of now, the law won’t go into effect until July 2010, but a Credit Cardholders’ Bill of Rights was recently introduced to move up the start date. Oh, and it will probably make getting credit even harder…

What credit drama have you experienced since the banks starting looking for handouts?

—Kenrya

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