Friday, Dec. 19
Posted 2 p.m.
Holiday letter to credit card issuers
Yesterday several regulatory agencies approved rules that credit card issuers will have to adhere to by July 2010. This is good news for consumers (although the issuers still have 18 months to do what they want). We hear a lot of complaints that hopefully will subside once these regulations take effect.
However, there are a lot of other issues that cardholders have with their credit card issuers. I thought I would let the credit card issuers know what many of our readers complain about.
Customer service: One of the most common complaints I hear is about customer service. Cardholders get notices in their statements or in separate pieces of mail that are hard to understand. They call customer service to ask some questions, and half the time the reps don't understand the notice either. Or they get different explanations from different customer service reps. How can they help the cardholder?
So, issuers, you need to do a better job of training your people -- especially when you have zillions of letters going out to customers telling them they're going to be paying more to pay off their debt.
Broken contract: The other thing we hear is that people are angry. They feel like they've played by the rules set down in the initial agreement with the card issuer, and without provocation, the rules change.
Credit card borrowing is the only agreement that does this. If you take out a 48-month auto loan at 6.75 percent, you know that your payments for four years are going to be X amount each month. You can plan your budget. If you've got a 5/1 adjustable rate mortgage, it's dicier because you don't know what the interest rate will be when your five years are up. But at least you know the risk going in. (At least, you should: If you don't understand what kind of mortgage you're getting into, you shouldn't sign that agreement.)
But credit cards? They can change the terms for any reason they feel like or add new fees. Issuers have given cards to too many people who can't pay their bills? Oops! We'll jack up their rates so they're in even deeper. (Hmm, sounds like the mortgage mess …)
Lower my interest rate. Many of our readers have told me that they want to pay their credit card debts; they just want a reasonable interest rate so they can do it. They can manage at, say, 11 percent, but not at 19 percent. Surely the credit card issuers can still make money by charging 11 percent interest.
The issuers say they are raising interest rates "due to market conditions." They are managing their risk. I understand that extending credit without any collateral, such as a house or a car, is risky. Americans have $976 billion in revolving (that is, credit card) debt, according to the Federal Reserve's most recent report on consumer credit. But this is the credit card business, and they've been making billions of dollars for years.
If you really want to manage your risk, lower interest rates to the national average (11.04 percent for standard variable cards, according to Bankrate's weekly survey) so that people will be able to pay their debt to you. Isn't it better to have cardholders pay their debt at 11 percent interest rather than default at 19 percent?
So that's what I've go to say on behalf of Plastic Rap readers.
This will be my last post of the year, as I head off to Wilmington, Del., home of my family, Vice-President-elect Joe Biden and the majority of credit card issuers in the world! Merry Christmas to all, and let's pay off our credit cards in the New Year!
Comments? Questions? E-mail me at Plastic_Rap at Bankrate.com.