I’ve heard a lot of feedback over my criticism of the U.S government’s handling of the financial crisis, especially the role that U.S. Treasury Secretary Tim Geithner has played in selling the $800 billion bailout that Congress enacted last week.
I like to think I’ve been tough, but fair. I even defended Geithner. Check out the current issue of New York Magazine. In it, I wrote: “The press, the pols, the Wall Streeters - they are all dumping their golden boy just when he’s figured out how to solve the most intractable set of financial woes since the ones that landed on FDR’s desk 76 years ago.”
So while I get ticked off at the Treasury Dept. and at Washington on an increasingly regular basis, that doesn’t mean I’ve gone soft on Wall Street. Hardly. On the February 19 edition of Mad Money I hosted “Survivor: Wall Street” with my viewers. Basically, the game determines which sectors are going to survive this market, and which sectors will not and get thrown off the island. There was no shortage of castaways on the show, most notably the financial sector, which keeps coming up with new ways to screw up the economy.
Exhibit “A” is the credit card industry. You’d think that the chief recipients of all this TARP money would fall to its knees in gratitude over the taxpayer’s largesse. You’d think they’d refrain from instituting credibility-killing practices that make ex-Illinois Governor Rod Blagojevich look like a choirboy.
But they don’t. Instead, the credit card companies ramp up an already aggressive campaign to hike interest rates, clamp down on card limits, and generally treat historically loyal card customers like dirt. In a perfect world, Congress would begin charging credit card companies who have received bailout money with the same 30% interest that they want to charge us, and with the same penalty and rate-increase structures in pace.
Yet we don't live in a fair world. Capital One (Stock Quote: COF), Citibank (Stock Quote: C), Wells Fargo (Stock Quote: WFC), Bank of America (Stock Quote: BAC) – all have been sending out those “important notice of a change in terms” letters that have been landing in American’ mail boxes. Now, if you pay even a day late, or have too big a balance in the eyes of the card companies, you’re being teed up for a huge hike in your annual percentage rate (APR). One notice I came across from Capital One said the cardholder’s default APR would rise “to a variable rate equal to 29.4%” as of 1/28/09. Of course, the cardholder didn’t even get the love letter from Capital One until February 20.
Of course, if you want to opt out of such a great deal, you can – but you have to pay off the entire balance of your card first.
Or how about this. J.P Morgan Chase (Stock Quote: JPM) has added a $10 “handling fee” to its cardholders – even as it, too, raises rates, hikes minimum payments, and cuts off credit from card-member accounts.
Talk about chutzpah.
So, what can we do to fight back? Let’s crack this case using some old-fashioned Cramerology.
First, don’t take these things personal. Credit card companies are raising rates and threatening to cancel cards for reasons beyond your control. Basically, they’re drowning in debt and are trying to generate as much as cash as they can, the good will of the customer be damned. Know that when you receive a letter from your card company saying they plan on raising your rates, they have to give a reason, and they have to give you time to opt out. Usually it’s something along the lines of the card company having to hike rates over late payments. If it’s something a little more offbeat, like your credit score has been lowered, and the card company now considers you to be a higher credit risk, they have to spell that out for you, too. So the best initial move, is to find out what you’re up against, and why your card company has boxed you into a corner. Only then can you begin to fight back.
Help is on the way – just don’t count on it this year. Congress recently enacted a new set of rules for card companies that limits what they can do in terms of cutting off credit, reducing credit lines, and raising APRs. But the rules won’t take effect until mid-2010. So until then, we’re on our own.
Get on the phone. When you get a letter from your card company threatening you with high rates and increased minimum payments, contact them right away. Be polite, be diplomatic, but be firm about it. Ask to keep your current rate intact and threaten to take your business elsewhere if they balk.
Pay the card off. I always like to keep a little bit of credit going, as it helps keep your credit score down, but if push comes to shove and you can’t get your card company to give in, just close the account down and move on to another card. For help in figuring out how much it will take to pay your card off, take a look at our credit card payoff calculator. A bonus, once you play your ace in the hole and ask to pay off your card, your lender may turn all lovey-dovey and ask what it can do to keep your business.
Your answer is short and sweet: “Leave my APR alone and I’ll keep the card.”
Look for a new card. This is an extension of my last point, but if you have decent credit, you may well be able to get a better deal with a new card company. I’m a big fan of credit unions and community banks. To move the “do over” process along more quickly, check out our credit card rate comparison site.
If you transfer your balance, I’m generally okay with that. Just watch out for high fees and “false floor” introductory rates that give way a few months into your contract.
You can also keep your credit company at bay by doing the obvious: paying your bills on time, sending in more than just the minimum payment, and cutting back on your card use so you don’t risk maxing out over your card limit. Also, make sure to read your statement carefully.
These are all common sense moves that can largely nip this whole APR thing in the bud.
Past that, go ahead and get mad. It’s not fair that we’re asked to bail out these bums with billions in TARP money, and their way of saying ‘thanks” is to hold us up for more money.
It ticks me off, too. Hey, I’m a New Yorker and I’ve seen stick-up artists operate with more class.
But if you do get that letter, abide by the tips above and keep the card companies from doing any further damage to your wallet. Think of it as one small victory in Wall Street’s war against common sense.
Brian O’Connell contributed to this article.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.