Taking A Look At Credit Card Trends
MICHELE NORRIS, host:
Tomorrow the president and his chief economic advisor, Larry Summers, will meet with top executives from the nation's leading credit card companies, including American Express, Visa, Capital One and Master Card. And those companies can expect a finger-wagging at the White House. The Obama administration is planning to crack down on the credit card industry for abusive late fees, arbitrary interest rate hikes and hidden charges. Congress is also taking aim at deceptive credit card practices.
Joan Goldwasser is a reporter for Kiplinger Personal Finance, and she covers the credit card industry. She joins me now on the studio to talk about the broad changes in credit cards since the economic crisis began. Welcome to the program.
Ms. JOAN GOLDWASSER (Reporter, Kiplinger Personal Finance): Thank you. I'm glad to be here.
NORRIS: Now, it's now reported that as many as one in three credit card holders have seen some sort of change in their contract or their payment arrangement. What's going on? Why is this so widespread?
Ms. GOLDWASSER: Mainly because the banks are in trouble, you know, bank profits are down. People are having trouble paying their credit card bills. So credit card defaults are up. The banks do not want to have any more defaults if possible. So they are limiting the access to credit. And they are raising interest rates and fees so that they are going to get some income to offset the charge-offs that they have been making to take care of the fact that people are defaulting on their credit card payments.
NORRIS: Now, in some cases, as I understand, the banks are just closing out credit cards altogether, canceling the cards. But help me understand something, if someone is having a hard time making their payments, and the credit card company raises the interest rate, doesn't that make matters worse? Won't that make it harder for someone to actually meet their financial responsibility?
Ms. GOLDWASSER: Oh, it definitely makes it harder for the individual. The banks feel that these people are risky, so they are taking sort of preemptive action. But for the individual consumer it's much harder.
NORRIS: And the banks know that.
Ms. GOLDWASSER: Yeah, oh, the banks definitely know it, but they cite business conditions, the recession and all of these kinds of words are being used to say we're having problems, and we are going to pass this onto you, our customer.
NORRIS: Now, is this just happening to people who are in arrears or are credit card holders in good standing also seeing changes in their contracts?
Ms. GOLDWASSER: Everybody is seeing it. Many people who pay on time, who have never had a problem with their credit card company before, who say, you know, I don't have defaults on my, you know, account. I don't have late payments and yet my credit card company has either raised my interest rate, lowered my credit limit, or in some cases, just closed the account.
NORRIS: What's the justification for that?
Ms. GOLDWASSER: Well, the companies just say, you know, we think you're going to become a riskier person. Sometimes it might be that you live in an area where there's been a lot of foreclosures. Or you live in an area where, you know, there are a lot of other people who are having problems meeting their credit card obligations because they're being laid off. And so you get tainted by the same brush.
NORRIS: What can people do to protect themselves from rate hikes and changes on the contract?
Ms. GOLDWASSER: Well, there's not a whole lot you can do to protect yourself. Obviously paying your bills on time is the most important part of it. The other thing is if you can avoid it, don't overspend. I mean this is obviously a difficult time for many people, and they're using credit cards to sort of tide them over. But as much as you can, you know, stay within the limits of your credit card, pay off as much of your bill as you can every month.
NORRIS: Joan Goldwasser, thanks so much for coming in.
Ms. GOLDWASSER: You're very welcome. I'm delighted to be here.
NORRIS: Joan Goldwasser is a reporter for Kiplinger Personal Finance. She covers the credit card industry. And since so many credit card customers have seen changes in their contracts, we're betting that a lot of you have questions about this issue. If so, we'd like to hear from you. Please go to npr.org, click on Contact Us and type Credit Card in the subject line. We're bringing Joan Goldwasser back next week to answer some of those questions.