Bank Customers Not Benefiting from Rate Cuts
Every time the Federal Reserve cuts interest rates, consumers expect to see lower rates on consumer loans. But many banks are going through hard times, and their customers haven't necessarily seen the benefits of lowered rates, especially with their credit cards.
RENEE MONTAGNE, host:
The Federal Reserve has been cutting short-term interest rates, and you might expect credit card companies to lower their rates, too. But some consumers are actually seeing their Visa or MasterCard rates jump by double digits.
NPR's Elaine Korry explains why.
ELAINE KORRY: It all comes down to the fine print. True, some credit cards with variable rates will fall when the prime rate drops. But card issuers have many other criteria for setting rates, including the catch-all general market conditions. When times are tough for card companies they reserve the right to hike rates to increase profits.
Curtis Arnold is the CEO of the consumer advocacy site Cardratings.com.
Mr. CURTIS ARNOLD (CEO, Cardratings.com): Because of all the pressure on the industry they're trying to squeeze whatever they can out of their customers. And so we're seeing rates being increased by another five, ten points.
KORRY: Arnold says to some degree every major card issuer is raising rates. Certainly not on everyone, he says, but on a significant chunk of account holders, the most risky, least profitable ones. And, says Arnold, it's not just late payers who've been hit.
Mr. ARNOLD: Even if you use that card very responsible, you always pay on time, you're still not immune to a rate increase, even if your credit score is good.
KORRY: Arnold says most card contracts give issuers the right to raise rates, quote, "At any time, for any reason." That could change under a bill introduced in the U.S. House of Representatives yesterday. Democrat Carolyn Maloney of New York has proposed a credit card holders bill of rights that would - among other things - protect against arbitrary interest rate hikes.
Elaine Korry, NPR News. Transcript provided by NPR, Copyright National Public Radio.
