Changes in 'fixed' rates cause angry
credit card customers to drag issuers into court
By Lucy Lazarony • Bankrate.com

Ready. Aim. Fire.

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 last.

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 the issuer
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 investigation
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 practices.

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 Attorney.

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 transfer offers.

No easy win for consumers
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 take effect.

"They can change the rules of the game on you," Renuart says.

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 proper notice.

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.

The importance 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