Friday, February 08, 2008

Bank of America - Our National Loanshark

Think my recent post about Pier One & Chase Bank's deceptive store-card program (and credit cards in general) was alarming? (all right, maybe I was the only one alarmed)

It's nothing compared to what Bank of America is up to.

Be warned - if you have a Bank of America credit card (they are among the largest credit card issuers), your interest rates may soon double - even if you've been a good borrower.

Business Week reports that Bank of America, apparently desperate for cash, sent letters to cardholders in January informing them that their rates are going to double but failed to give a reason for the increase. Cardholders were given a phone number to call for more information, but reportedly still didn't get an answer as to why their rates were doubling.

This is a troubling story and well worth a read.

Here are a couple particularly shameful cardholders' experiences mentioned in the article:

Michael Jordan, 25, a software developer who lives in Higganum, Conn., says he received a letter from Bank of America in late January advising him that his card rate would rise from 9.99% to 24.99%. The software developer, who earns $80,000 per year, says he was "shocked" because his payments had been on time and his credit score hadn't changed in the last year. In fact, Jordan says, he has only $4,500 in overall outstanding credit-card debt on two cards and that, on the Bank of America card in question, he had paid down his balance to $3,000 from $3,700 last August. "His rate increase seems unjustified based on his credit profile," says David Robertson, publisher of The Nilson Report, a credit-card industry trade publication.
Bank of America is trying to get ahead of Amanda Pennington, 29, of Euless,Texas. She says the bank raised her credit limit three months ago from $5,000 to $8,000 because of her strong payment history. Then she got the letter from the bank in mid-January notifying that her rate would rise from 15.74% to 25.99%. When she called, she says, the bank told her it was raising her rate because her balance was now too high, though it was still under the higher new limit the bank had previously granted.

Nice, Bank of America. You're a real class act. I won't cry when you lose $10 billion on your Countrywide bailout.

Once again I'll say it: Beware of the predatory lender in your wallet.
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Anonymous said...

This just proves the point that we live in a nation where people think nothing of charging every little thing and do not save for tomorrow. Live without the credit cards, save more, live below your means and don't let the banks have the upper hand. And if the banks start to fail then what? Sounds like the beginnings of a great depression.

Anonymous said...

- BOA (as with all credit card issuers) can charge whatever interest rate they choose and can change the interest rate charged at any time.

- Those terms are clearly spelled out in the contract a new card user agrees to.

- The card user chooses, by not paying the balance in full monthly, to be subjected to whatever interest rate is currently in force.

Sorry, BOA isn't a bad guy here. A little personal responsibilty goes a long way.

Anonymous said...

Why does that guy in the article making 80k a year have to carry 4k in credit card debt? Show some freaking self control and save a little to pay for stuff.

What a loser .....

Cayo Dave said...

anonymous - you are ignoring the fact that Bank of America is doubling and tripling rates for cardholders who have not defaulted, been late, or had any deterioration in FICO score.
Further, the letter notifying them of the increasing rates failed to define why they are being penalized. Calls placed to Bank of America did not clarify the cause for penalty.
What you are missing is that the credit card industry is out of control and is clearly and unneccesarily harming good consumers. Also, people need credit for a variety of reasons. Saying "Show some freaking self control and save a little to pay for stuff" not only ignores the realities of most peoples' lives, it lets the loan-shark-like credit card companies completely off the hook.
Consumers, left with no other choice for credit, are at the mercy of this industry.
Therefore, regulators should look at these predatory practices and do something to correct this problem.
Or, something needs to be deregulated to allow more competition in the consumer credit industry.
With interest rates falling to new lows, shouldn't performing credit-card holders benefit with lower credit card rates?

Anonymous said...

Cayo Dave (from anonymous #2)-

I've ignored no facts. The card holders are simply doing what their contract (with the card user) permits them to. They do not have to provide cause to change their rates, only notice.

It is not necessarily done as a penalty, and in some cases is simply a matter of charging what the market will bear. Admittedly, there does appear to be a tendency toward waiting until a user is in potentially over their heads, then escalating the rate. An action which, while possibly morally reprehensible, is not illegal. They make no bones about it, however, with the incessent stream of 0 balance transfer offers and whatnot.

As to credit card issuers being out of control... They aren't. They are operating within the law, and it is rather credit users who exhibit a lack of control.

Personally, I use credit (as most people do) but I'm very judicious about the type of credit I use. Credit cards are paid in full monthly (in other words, I only buy what I can afford to pay for). My one vehicle loan (the other three vehicles are free and clear) is with a credit union at a very low, fixed rate. My home mortgage is on a 15 year at 4 5/8 and will be paid off in a few more years.

Did I get to this point easily? Hell no. Made a LOT of financial mistakes in my early years and paid dearly for them. But not once did I ever blame a credit issuer for my poor decisions.

And that's really what this boils down to. I believe in individual responsibility, letting the market determine interest rates, and using my purchasing power to sway which business practices work and which don't. You appear to want the government to intercede and save you from yourself. It's basically a conservative vs. liberal viewpoint in the end.

I, for one, think I can run my life (even with the mistakes I invariably make) a helluvalot better then government ever could.

Cayo Dave said...

I am an absolute free marketer - so long as the market is free. But the credit card market is not free - it is rigged.
And so, clearly the markets are failing us with credit cards - probably because of laws designed by the credit card industry restricting competition and protecting heavy-handed (ie: loan-shark-like) methods of doing business.
And just because something isn't illegal doesn't mean it is all right and shouldn't be changed. Like during the days of slavery, there is an institutional injustice, sanctioned by our government, that is enslaving people - this time in a debt trap.
Lastly, you commented that "A little personal responsibilty goes a long way." The cardholders mentioned in the Business Week article showed personal responsibility - but Bank of America arbitrarily and unfairly raised their rates.

Anonymous said...

(Anon #2)...

Given that there are many, Many, MANY banks, public and private corporations, and even institutions that issue credit cards, all governed by the same basic laws, I fail to see how the credit card issuance business market is rigged or competition is restricted. Perhaps you can explain the manner in which this rigging and restricting is occurring.

A comparison to slavery is a non-sequitur. Any individual can choose to use or not use credit at any time. In no way and at no time is any individual or group of people forced to use credit, or more specifically credit cards against their free will.

As to the individuals in the Business Week article, it could be debated the extent to which they showed personal responsibility (as another commenter said, why is someone earning $80k carrying a $4k credit card debt?), but in the context of your complaint what the card users did or didn't do (beyond entering into a contract) isn't the issue.

In the end, there is only one question to be asked: Did both parties to the contract comply with the terms of the contract? The credit card issuers did, by all appearances, comply with the terms that the credit cards users agreed to when they borrowed monies from the issuers. That being the case, the users have nothing to complain about.

Cayo Dave said...

"...the users have nothing to complain about."
Wrong. Those users were deceived. Preyed upon.
As for the proof of rigging, just look at the market. If there was true competition, wouldn't interest rate spreads be much tighter. Banks are borrowing money at 3.25% or less. But they charge interest rates at 8 times that. In a fair market, there is not way the spread would be that large.
The aim of my post is a warning to people about abusive credit card companies.

Anonymous said...

Cayo Dave give it up. Anon 2 is dead on about the credit card companies and your argument is pointless. You never do get it do you bud? You just ain't gonna win.

Cayo Dave said...

If you don't think the credit card industry is abusive, then I'm convinced it is YOU who don't get it.
Anyway, thanks for visiting my blog and taking the time to comment.

Anonymous said...

yeah its abusive, but people volunteer to be abused so screw them

Credit cards are not necessary, you don't have to charge stuff

Cayo Dave said...

Congress is now getting into the act recognizing the abusive credit card industry has left consumers at the mercy of unfair interest rate hikes and predatory lending practices. You can read more about it here
Also, the Washington Post today has a story about the out-of-control credit card industry here.
It is well worth a read.
While I agree that credit cards are abused by consumers as much as by issuers, there are still too may innocent victims of the credit card industry - people who had no choice but to need to credit - maybe for medical expenses, or emergencies, or shoes for their children. These people need protection from an industry hell-bent at screwing each and every one of them.

Anonymous said...

(From Anon #2..)

Cayo Dave,

Though it's evident you're the sort of person that doesn't let those pesky facts get in the way of an opinion, I'll make one last comment on this topic.

"Those users were deceived. Preyed upon."

This is the same argument being used to get those who bought sub-prime mortagages and are now in trouble off the hook.

No, not at all. As I've said numerous times, both parties entered into a contract (heavily regulated both on a Federal and State level, I might add) that clearly spelled out the terms under which the lender would provide monies to the borrower. At no time (including by you) has it been alleged that the terms of those contracts have been in any way not met by the lender.

In other words, those that complain that they're being "abused" or otherwise taken advantage of by a lender are simply those people that are either too stupid to read and understand the contract they signed, or chose to believe in some fairy-tale land of theirs that what the contract said wasn't really true.

And when the shit hits the fan, they expect mommy (the "government") to make it all better.

This sort of mind-set is what will result in the demise of our representative republic. I have no hesitation in saying the "great experiment" will fail within the next 100 years (it's already lasted longer than it should have). I'm just glad I won't have to live through it any more than I already am.

Cayo Dave said...

O.k. anonymous. I get it. You are a lawyer. Or at least raised by a pack of them.
You commented:
...those that complain that they're being "abused" or otherwise taken advantage of by a lender are simply those people that are either too stupid to read and understand the contract they signed...
The fact is that many people are not educated enough to understand those contracts. These contracts are written by lawyers and are difficult for many to comprehend. Further, the contracts are so vague that even an educated person wouldn't know the extent to which they are agreeing to.
I'm standing up for the disadvantaged, uneducated, and powerless. These people need to be protected from preying credit card companies.
I'm baffled that you don't think the credit card companies are at fault here.

Anonymous said...

"maybe for medical expenses, or emergencies, or shoes for their children"

lol, yeah and what is that .oo1% of them

people buy useless crap they don't need to impress others on credit cards

those same people who "have" to use credit cards probably have cellphones and cable TV at home

Americans have become ridiculous finacially

Anonymous said...

Credit Card companies are not at fault. Neither is the housing/mortgage industry. Nobody forced you to sign. Everything is in writing and most people in the US can read. They just choose to be ignorant and expect the government to bail them out. TAKE RESPONSIBILITY for your OWN ACTIONS and QUIT BLAMING OTHERS for your own STUPIDITY. It is mystifying how anyone can not realize that if you can't pay for it, DON'T BUY IT!

Anonymous said...

If you don't understand the contract, why are you signing it? No one is THAT dumb. If you barely can afford the house with an interest only payment, what makes you think you can afford the house when it adjusts? Why? Just to impress or to believe that you are in a better station than your own allotment? If you have a credit card limit of say $5000 why are you charging $5000 worth of useless crap like the big screen plasma or the fancy wheels for your SUV or for that trip to Hawaii? Why do people live beyond their means? Because they can and they know that won't be held responsible in the end. The government will bail them out. It's time to stop this insane way of living and force people to own up to their mistakes. Sure, it will cost them. They will ruin their credit, not be able to buy unless in cash, be forced to rent cheaper and smaller places to live or move in with family, take a second or third job but you know what? I don't care. They got themselves into this mess and they need to realize that they must work their way out. It isn't slavery or punishment is the the cold hard facts of life and if you have to sacrifice for a few years to pay back what you borrowed and what you owe so be it. It's a lesson learned the hard way and I for one will not bail the deadbeats out and neither should you want to support anyone who is trying to ride on the idea that 'oh I didn't know' or 'I didn't understand'. That's BS and you know it so don't hand us the liberal left wing mumbo jumbo about helping the downtrodden. It doesn't cut it Cayo Dave and you know it.

Cayo Dave said...

First, the contract is one-sided - written by the credit card companies. Second - the credit card companies constantly change the agreement - though if you tried to do the same you would be wasting your time. If you care so much about contracts, why not empower the "little guy" and protect him from constantly changing terms?
Yes, I agree that many consumers abuse their credit cards. But the reality is that most bankruptcies in this country are a result of medical costs and divorce. There are very legitimate reasons that people need credit. Taking advantage of them, loan sharking, is exploitation.
The credit card industry is out of control - preying on everyone - especially the least solvent.
Here is an interesting article, published in the Washington Post, about why credit card companies are WORSE than loan sharks.
And here is a more recent article from USA Today on the same subject.
Anonymous - you are a cutthroat douche. It would be sweet poetic justice if one day you are at the mercy of the credit card companies you defending.

pam lloyd-camp said...

Bank America raised my rate on purchases from 14.24 to 21.49. Now in Oct they have raised my promotional rate from 5.99 + prime to 18.74, the rate my purchases were at. What they have done breaks their agreement. The booklet they sent out in Oct says for me to agree to the change I have to use the account, I haven't, I can't cause they wouldn't reissue the expired card. they also have not steadily lowered the finance rate to 5.99 + prime. they've always taken a while. Has anyone tried to sue them? If you want a copy of the agreements and letters ask at