Changes in 'fixed'
rates cause angry
credit card customers to drag issuers into court
Consumers continue to take aim at credit card
companies in court.
The latest round of class action lawsuits focuses
on promotional and supposedly "fixed" interest rates that didn't
In August, a federal judge in Seattle certified
as a class action a lawsuit against First USA, the credit card unit
of Bank One. The suit accuses First USA of unilaterally increasing
the annual percentage rates (APR) charged on thousands of fixed-rate
accounts about nine months after the accounts were opened. The rates
were increased to as much as 30 percent. First USA is challenging
the class action certification.
Earlier this month, a class action suit was
filed against Fleet Bank. The company is accused of false advertising
and violating Rhode Island's Deceptive Trade Practices Act after
it increased the APR on a credit card after less than a month.
Quick change by
Tyler Chavers of Eagle River, Alaska, signed up for a card
with a 7.99 percent fixed APR on balance transfers. Less than a
month later, he received a letter from Fleet saying the APR on his
card would be increased to 9.5 or 10.5 percent because the Federal
Reserve had bumped up interest rates.
When Chavers called Fleet's customer service
to complain he was told: "The fine print will get you every time."
But Chavers and his attorney Peter Wasylyk of
Providence, R.I., don't think so.
According to the suit, the Fleet offer stated
that rates on balance transfers would only be subject to change
if the cardholder paid late, closed the account or became delinquent
with another creditor. None of those things happened.
"You may see this situation with other credit
card issuers as well where introductory rates advertised as fixed
are then changed," Wasylyk says. "The entire credit card industry
seems to have taken an aggressive path."
These types of practices irk credit card customers
and consumer advocates.
"That's outrageous," says David Butler, a spokesman
for Consumers Union. "Any credit card company that advertises one
rate and then almost immediately offers a different, higher rate
ought to be put under serious scrutiny by federal regulators and
the court system."
An industry under
Much of the credit card industry has been "under serious
scrutiny" in 2000. Since June, four major credit card issuers have
agreed to multimillion-dollar settlements in disputes over billing
In June, Providian agreed to reimburse at least
$300 million to customers who were victims of misleading sales pitches
and charged for products that they did not want. This record-breaking
settlement was the result of a yearlong investigation by the Office
of the Comptroller of the Currency and the San Francisco District
In July, Citibank agreed to pay $45 million
to settle a consumer class action suit that accused the credit card
giant of improperly assessing finance charges and late fees.
In September, Chase Manhattan agreed to pay
more than $22.2 million to settle a consumer class action suit that
focused on the bank's use of an early morning cut off time for crediting
payments. Any payment received after 9 a.m. on its due date was
tagged late and charged a fee. Chase has agreed to bump back its
cutoff time for payments to noon and give its credit card customers
a 24-hour grace period before charging late fees.
In September, MBNA America agreed to pay more
than $6.4 million to settle a consumer lawsuit involving 1.8 million
cardholders. The plaintiffs charged MBNA with "misleading" balance
No easy win for
The more recent disputes over interest rate hikes may be
tougher for consumers to win.
"Unless they have promised that they are never
going to change the APR or interest rate, they can because of change-of-term
provisions," says Elizabeth Renuart, staff attorney at the National
Consumer Law Center.
Interest rates, late fees and grace periods
all can be changed on short notice. According to federal law, issuers
must notify their customers of changes a mere 15 days before they
"They can change the rules of the game on you,"
So the deal you sign on for may not be the deal
you get later. It's all perfectly legal if an issuer gives customers
Unfortunately, few customers take notice of
change-of-terms provisions and other fine print when they choose
a credit card offer. Still fewer read statement stuffers, which
would alert them of upcoming changes to their accounts.
of reading the fine print
The best advice for consumers is to get out the magnifying
glass and read all that teeny, tiny print and keep a paper trail.
Start with the ad for that credit card. Did
it come in the mail? Did you find it on the Web? Make a copy. Be
sure to make a note of the date.
Make a copy of the application form. When you
get the credit card agreement in the mail, be sure to compare its
terms with the terms of the advertised offer.
If you don't like what you see, call the issuer
and complain. If they won't budge, start looking for another credit
card. If you've already used the card, you're stuck with its interest
rate. You have two choices: pay off the card or transfer the balance
to another card. This worksheet
from Bankrate.com shows you the ins and outs of transferring balances.
Once you have a card you're happy with, keep
track of billing statements and other notices from the card company.
That way you'll know when a change is made and when it may be time
to look for another card.
--Posted: Oct. 25, 2000