More than two out of five U.S. credit cardholders report getting whacked by negative changes to their accounts in the past 12 months, according to a new CreditCards.com poll. The survey comes amid rising criticism of banks for raising interest rates and fees and slashing credit limits on millions of accounts in the months just before a tough new credit card law takes effect.
Did you get whacked? Or wooed?
More than two in every five credit cardholders report some negative action has been taken against them in the past year -- but others are getting rewarded with increased credit limits. Click image to enlarge chart.
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The scientific telephone poll, conducted June 26-28, 2009, on behalf of CreditCards.com by GfK Roper, also highlights a less-talked-about aspect of the current credit crunch: A select few credit card users with high incomes are getting higher -- not lower -- credit limits as banks compete to win over high-end borrowers.
"It is common for issuers to lower limits and/or raise fees and APRs on the weakest of their FICO-scored cardholders, and at the same time raise credit limits on the best FICO-scored customers, those with stellar usage and repayment histories (say, 760 FICO+)," Robert Hammer of R.K. Hammer Investment Bankers, a California card industry consultant, writes in an e-mail. "It is, as one might suspect, a very delicate balancing act."
That balancing act -- of giving to some while taking away credit from others -- may be the reason one in three cardholders in the survey say they have actually gotten increases in their credit limits over the past 12 months. Credit industry analysts say those contrasts are likely to grow as the credit card industry looks to develop a new and profitable business model in the upcoming era of credit card regulation.
The poll contacted 1,004 adults through random-digit dialing (see poll methodology.) Of the total sample, 824 had credit cards.
The poll asked respondents with credit cards if any of a number of changes in terms had happened to them in the past 12 months. Getting an increase in their credit limits tops the list (33 percent), followed closely by negative changes such as getting an interest rate (APR) increase (30 percent) and having a credit card limit lowered (14 percent). Other changes include being switched to a variable rate card (11 percent), being offered an incentive to close a card account (8 percent) and being asked to submit a pay stub or tax return in order to qualify for a credit card (4 percent).
Other results include:
More than two in every five cardholders (42 percent) reported some negative change in their credit card accounts.
Cardholders reporting credit limit increases were disproportionately higher wage earners. More than two out of five (42 percent) of people earning $50,000 a year or more say their limits were increased and 40 percent of people earning $75,000 or more a year report increased credit limits in the past 12 months. The lower-wage earners had less success: Only 19 percent of cardholders making $30,000 to $39,999 a year said their limits were increased.
Nearly 40 percent of respondents with credit cards say they do not know or had no response to whether they had seen changes in their credit card accounts.
All of the major credit card issuers have engaged in one or more of the practices cited in the poll. Annual fees and hiked balance transfer and foreign transaction fees are also hitting millions of credit cardholders.
Equifax, one of the Big 3 consumer credit reporting agencies, recently revealed that average credit limits declined 3 percent to $4,594 in 2009 from $4,747 the year before. New credit card issuance dropped 38 percent during the first four months of 2009 compared to the same time period in 2008, according to Equifax data.
Citi offered cardholders up to $550 in bonuses if they reduced their credit limits and agreed to stop using their cards for up 11 months.
American Express had a similar strategy -- offering $300 in gift cards to entice certain users to pay their balances off in full and close their accounts by April 30. Other issuers shut customers off by closing unused or dormant accounts. Amex also began a policy of requesting pay stubs and income tax returns as proof that cardholders have sufficient income to pay their charge card bills.
Fixed no more Bank of America and Chase are both shifting large numbers of cardholders from fixed-rate accounts to variable rates tied to an index or prime rate plus a fixed rate (known as a margin) of, for example, 8.99 percent. Discover has also notified some of its customers they would be switched to variable rate accounts. Other card issuers are likely to follow. The reason: Come February 2010, when major provisions of the Credit CARD Act of 2009 take effect, credit card companies will be limited in when they can increase interest rates on existing balances.
According to the new law, one of the acceptable ways to jack up rates on existing credit card balances is when accounts have variable APRs. The move from fixed rate to variable APRs may not affect many consumers now -- because the prime rate is at a historically low 3.25 percent (as of July 28, 2009). When the prime rate begins to rise again, credit card issuers will be able to pass the increase on to consumers with variable rate accounts -- regardless of the card users' payment history.
Upping the minimum payments Chase announced that starting in August, minimum monthly payment amounts would increase from 2 percent to 5 percent on some accounts. For example, a person who owes $5,000 on a credit card and was paying $100 as the minimum would have to pay at least $250 a month in order to avoid additional fees and keep the account in good standing.
"Many cardholders were already living on the financial edge, struggling to make their minimum payments each month. More than doubling the minimum payment has literally pushed many over the edge," according to Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling (NFCC), a national association of nonprofit credit counselors.
Cunningham suggests cardholders negotiate with their card issuers: "The first thing the consumer should do is find out why the bank imposed this change to his account. If there's been a sketchy pay history, then he doesn't have a leg to stand on. However, if he's been a longtime customer with a good pay history, I suggest building my case with the bank, proving that I'm just the type of customer they want to have."
Hammer, the card industry consultant, notes that many banks are weighing their options on how to handle these customers. "Banks must necessarily walk a pretty narrow tightrope," according to Hammer. "Earning enough on the bad accounts, many of whom will go to charge-off, with offering enough value at the right price points to attract and retain the better customers. You cannot chase away all your accounts and stay in business very long."
Giving and taking away Representatives of several major credit card issuers contacted by CreditCards.com confirm that they are increasing and decreasing interest rates and credit limits as warranted by customers' credit records.
Chase spokeswoman Stephanie Jacobson says via e-mail: "As a standard operating practice, Chase is continuously evaluating whether our customers' credit lines are most appropriate for the customer and his or her needs, and will make adjustments accordingly. For example, we will lower credit lines for customers who are showing signs of increased risk or inactivity, and we may raise lines for our most creditworthy customers."
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Jacobson reports that over the past 12 months Chase has:
Opened more than 1 million new credit card accounts each month for a total of more than 14 million customers.
Extended an average of more than $6 billion in new credit each month.
Increased the credit lines of more than 500,000 customers a month.
Citi, which has been under fire for raising interest rates on millions of accounts, conducts periodic reviews of accounts, according to spokesman Sam Wang: "We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles. These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit."
Interest rate hikes It's no secret that credit card lenders are tightening lending standards and dramatically cutting back on card lending -- even to customers who pay their bills on time each month. Many of the major banks have cited increased risk and uncertainty over the bad economy as reasons for many of the changes.
Members of Congress -- who passed tough credit card reforms in May -- are now bristling over interest rate hikes they say are designed to squeeze more profits from consumers before the new law takes effect. U.S. Sen. Chuck Schumer of New York asked the Federal Reserve to use its emergency powers to halt the current spate of interest rate hikes. Sen. Christopher Dodd, chairman of the Senate Banking Committee, also asked regulators to intervene and force banks to begin early implementation of a provision of the Credit CARD Act. Dodd wants card issuers to review interest rate increases dating back to Jan. 1, 2009, and, if warranted, lower APRs. Under the new law, a requirement for six-month reviews of accounts does not take effect until August 2010. Regulators must issue guidelines on how card issuers should implement the APR reviews.
According to a Fed spokeswoman, regulators have not released a response to the senators' requests.
Cunningham, from the credit counseling association, notes that the poll did not indicate why credit limits were increased for respondents.
"I wonder if they requested it, or if the bank simply increased it," Cunningham says. "If a person requests an increase, it could indicate they need more access to credit, thus are in a financial bind. If the bank independently increased it, then they were using this as a tool to encourage the consumer to spend more. Presumably the bank thought the individual could responsibly handle the increase. Either way, the consumer needs to be prudent when using his credit card, not charging more than 30 percent of the available credit, and paying the balance in full when the bill arrives."
Poll methodology The survey was conducted from June 26-28, 2009, by GfK Roper Public Affairs & Media on behalf of CreditCards.com. Random digit dialing phone interviews were completed with 1,004 adults aged 18. The raw data were then weighted by a custom designed computer program that automatically developed a weighting factor for each respondent, employing five variables: age, sex, education, race and geographic region.
The survey had a margin of error of plus or minus 3 percentage points on the full sample, and plus or minus 4 points on the subsample of credit cardholders.
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