Is there truly any reason to trust financial institutions these days?

Developments within the credit card space have exposed the true colors of these institutions . . . not that there was ever any doubt. Recall how consumer outrage at rapidly rising interest rates on credit cards pressured Washington to rein in the usurious business practices of the financial industry.

New legislation was badly needed as banks clearly utilized abusive business practices. The Wall Street Journal highlighted these developments in writing on May 21st, Credit-Card Fees Curbed:

“Credit cards are a tremendously valuable and useful tool for consumers, providing them with relief during critical moments,” said Senate Banking Committee Chairman Christopher Dodd. “This is a very important industry….We just want it to work better.”

The legislation marked a major defeat for the credit-card industry, as lawmakers complained that consumers are being hit with tricks and traps on their cards.

Well, while the legislators were in the front room having the photo ops, the bankers were in the back room building a new and better mousetrap, at least from their perspective.

The Los Angeles Times sheds light on how Credit Card Firms Try End Run Around New Federal Rules:

Banks are quietly changing the terms of millions of credit card accounts as they brace for a tough new law that will limit rate hikes.

The law would restrict interest rate increases unless a credit card has a variable rate. So at least two major lenders are switching their cards with fixed rates to — you guessed it — variable rates.

“It’s completely unfair,” said Linda Sherry, a spokeswoman for Consumer Action. “It’s an end run around the intent of the new law.”

That law is the Credit Card Accountability, Responsibility and Disclosure Act, which President Obama affixed with his signature in May. Its various provisions will be phased in between next month and February.

Who are these two major lenders? Bank of America and JP Morgan Chase. Given the size of their operations, watch every other credit card issuer set the same trap.

How exactly does the trap work? The banks try to baffle consumers with bull*%!# while sticking their hands ever deeper into our wallets. The Los Angeles Times highlights:

Los Angeles resident Victoria Afonina received a letter from Bank of America the other day informing her that “as a result of a change in our business practices, your annual percentage rate will use a variable rate formula based on the U.S. prime rate.”

“If the prime rate changes,” it said, “your APR will vary accordingly.”

Afonina, 44, told me she had to read the letter several times to understand what BofA was saying.

She said she’d been a cardholder with the bank for about five years and had enjoyed a relatively low fixed rate of 9.9% any time she carried a balance.

“When I finally understood what they were saying, and that my rate could change every month, I was shocked,” Afonina said. “I’m a good customer. Why are they treating me like that?”

Good question.

“The change from fixed to variable rates allows us to better manage our business as market conditions change,” said Betty Riess, a BofA spokeswoman.

And those new federal rules. . . ?

“Legislative and regulatory changes that limit our ability to re-price for risk were a factor in our decision,” Riess acknowledged.

How could Washington possibly write legislation which allows banks to set these traps and negate the very spirit of the law? Are they that stupid? Are the bank lobbying efforts that strong? Are legislators more concerned with the photo op and headlines than truly protecting consumer interests?

Yes, yes, and yes.

In the meantime, Sense on Cents strongly encourages you to pay down your credit card balances as quickly as possible so you will not be subject to this usury!!


  • BigFire

    I really don’t pay much attention to the credit card interest rate because the first rule in my financial religion is:

    1. Never pay interest for credit card, always pay in full.

    I went a step beyond that and paying off my balance on a weekly basis. Online banking is such wonderful invention.

    In case you’re curious, there’s only 2 rules in my financial religion. Here’s the 2nd one:

    2. Never pay for parking if you can help it.

    • Arabella Trefoil

      Great rules to live by.

  • We went to see “Public Enemies” at a Monday (free popcorn day) matinee this week. Reminded us of how people hated the banks/bankers so much during the depression that bank robber John Dillinger was able to hide in plain sight among the public. Evidently, when they robbed a bank, they let the customers keep any money they had in hand. I find myself feeling a little the same way when I read of someone robbing banks lately.

  • tek

    Larry: one begins to understand the mistrust of banks in days gone by–cash in the mattress.

  • Arabella Trefoil

    My husband and I pay for most things with cash. A few years ago, he bought me a serger (a kind of sewing machine) that was on sale. I took him into the store to show him the machine (he even test drove the thing!) We decided we could buy the machine as a combo birthday/Christmas present for me, especially since we got a really good deal on it.

    When my husband paid for the sewing machine in cash, the women at the sewing store were astonished. They said “Don’t you want to put it on your credit card?”

    I thought they were going to call the cops!

    Pay in cash and feel the pain!

    • WMCB

      LOL! We recently paid cash for our house. Very nice one, too. They all thought we were insane, but we saved our asses off for years, found a really good deal, and paid CASH for the sucker. Paid cash for our cars, too.

      Yes, you get strange looks when you do that.

  • candymarl

    “They hate Us!” “They really hate us!” Apologizes to Sally Field.

  • Peggy Sue

    Had my comment swallowed. Sending an email now.

  • Peggy Sue

    This feeds right into a recent experience I had, Larry. I had my family down recently for a visit. My husband and I were transferred south about a decade ago. We usually do the travelling back and forth annually, but this time my kids and in-laws were doing the driving.

    So, I wanted to spruce the place up. We had a new Penny’s open locally and I found what I needed in bedding and housegoods. I’d once had a Penny’s charge but hadn’t used it in years. But I was offered a 10% discount if I renewed my charge. Sounded like a pretty good deal, so I opened it up that day.

    Then, when I got home and read the contractual agreement, printed in microscopic print, I realized the on-going monthly credit charges were calculated at:


    I almost passed out. Trust me, that balance was paid off toute suite. And my husband and I are not slackers; we’ve always had very good credit. But 29%???

    As consumers, regardless of our financial level, we need to be very, very careful. The sharks are in the water and they love the smell of blood.

    As an aside, I read today that mortgage brokers are looking forward to “reinstitute” the non-documented mortgage packages, maybe in the next 6 months.

    Can we say, some people never learn??? Or maybe they have–there are suckers on every street corner.

  • cash is king.

  • Like most people I am carrying a couple of cards with balances…low interest rates until a couple of months ago. After complaining, one lowered the rate back to the original but AMEX would not even consider it. Same story…good customer, no blips. I’ve been watching Clark Howard on HLN weekends. Good advise there too.

    I won’t use the cards and use only my debit card for purchases. As soon as they are paid off, I’ll keep a card with a low limit for small emergencies that will be paid off monthly.

    They have to be punished and for some, put out of business. BofA, AMEX, Citi, Chase all took bailout money from the tax payer and then screwed their customers so let’s put them on our hit list. In the process too of changing my banking practices to small local bank or credit union. F Them.

    And yes, we all have to get back to simplicity and cash only. Otherwise, do without until affordable.

  • felizarte

    In the sixties, one of the most popular posters was by Sister Corita that said: “Suppose they gave a war and nobody came?”

    Suppose everybody kept their spending to the bare minimum for a month, will those people with hands on the power levers pay attention?

    • Arabella Trefoil

      The economy would grind to a halt. My husband and I live very frugally. I used to work at an investment management firm. One of the analysts there told me that our lifestyle was hurting the economy.

      I thought saving was supposed to be good. Ditto living within your income. But not so. Americans have to spend, spend, spend or the machine falls apart.

      People used to respect the Japanese and the Chinese for saving such a large (compared to the USA) percentage of their income.

      If I ran my household the way the government runs our economy, I’d be living in a cardboard box under a bridge within a month.

      • WMCB

        Americans have to spend, spend, spend or the machine falls apart.

        Yep. Forget votes and calling your unresponsive congressmen. If every American who was pissed off just decided NOT to spend except bare necessities, if we went on a “consumer strike”, we could put the fear of God into them.

        • felizarte

          That’s it! A NATIONWIDE CONSUMER STRIKE! There doesn’t seem to be anything that citizens can do to stop the trainwreck. Then perhaps doing nothing will be more effective.

  • felizarte

    I figured out a few years ago that you can’t win against banks and credit card companies. My personal solution was not to have credit cards anymore. I don’t buy or want anything that I don’t have the cash for.

  • Ellen D

    In the meantime, Sense on Cents strongly encourages you to pay down your credit card balances as quickly as possible so you will not be subject to this usury!!

    I have a feeling that everyone, like me, who reads and admires you L.D. is pedaling as fast as they can to do just that. But it’s not that easy or it would have been paid down a long time before this.

    I presume there is nothing the banks can do about their old transfer offers (3.99 until the amount is paid off etc.) because they offered specific contractual terms for that sum. Am I right?

  • Betty

    I just got home from the grocery store and at the check out counter there was a magazine offering to tell me over 200 was to regrow my finances. I thought of Matt Taibbi post about Goldman Sachs. And wondered why anyone should bother working hard and saving, we are enslaved – just don’t know it.

    The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

    Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage

    What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain.

    They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet.

    Wonder if there will come a day when all that is left for humanity is scraps and if even then an engorged Goldman Sachs will be fighting for the majority of it. Think of the Irish Potato famine, or where Dickens got the material for his books.

  • Spammy got my comment.

    It was about writing my Senator again!

  • I wrote my Senator about the “new” credit card law — after she sent an email patting herself on the back. The idiots who filter her email responded by thanking me for commenting on the “junkers” bill. (Money for junk cars — or old clunkers).

    I am going to write another letter about their “new” credit card bill to the tennis shoe “mom” Senator and this time snail mail it.

    ALL of these politicians should be voted out — I will not contribute to any re-election campaign.

    • tek

      Northwest rain: I’m with you. I was surprised that one of our sons criticized the clunker bill–it’s to help the auto manufacturers, not to help the environment.