MICHELE NORRIS, Host:
Gail Hillebrand is a senior attorney at Consumer Union and she's been tracking changes in the credit card industry. We asked her to help us make sense of this latest move.
GAIL HILLEBRAND: Amex is being pretty careful not to tell us exactly who got those offers, but they did say its people of higher balances and it looks as if it's people who are not generating a lot of new transactions - and not generating retailer revenue for Amex.
NORRIS: But taking a long time to chip away at that balance and bring it down.
HILLEBRAND: Correct - carrying a balance.
NORRIS: Do they have to clear the account all at once? Or do they have six months to do this before they get the $300 payment?
HILLEBRAND: The offer gives just two months to pass the balance. So, many people who are carrying a balance can't pay them off all at once. I suspect the timing of this might have something to do with tax refunds coming in, and the thought that if you're going to pay down your debt with the tax refund, Amex wants you to take them instead of one of your other credit card companies.
NORRIS: Hmm. Now, Amex says they're doing this to reduce the risk or future defaults. Does that explanation makes sense to you?
HILLEBRAND: It makes some sense. We're seeing all kinds of, sort of, cutbacks and harsher terms different from this. At least this you get a choice. In the credit card industry, generally, that are designed to respond to the fact that the credit card industry pushed out too much debt to American consumers, and too much credit availability, and now they're trying to pull it back all at once.
NORRIS: So American Express is offering, essentially, a carrot - a $300 carrot - to move potentially troubled accounts off their docket. What are other companies doing to shed troubled accounts?
HILLEBRAND: But the companies are trying to reduce their overall exposure by bringing the limits down very close to what is already owed. And some consumers are telling us that as they try to pay down that new - their existing balance - so as to make it not look like their maxed out on their card with the new limit, it's being lowered again.
NORRIS: Are they also raising interest rates?
HILLEBRAND: We have seen some increase in interest rates over the last year. Some consumers seem to be getting it more than others. They get these vague explanations - like market conditions. We're also seeing a lot more consumers getting bumped over into the penalty box. You know, you forgot to mail a bill. Or, the payment came in one or two days late. Most consumers are getting bumped over. And the difference between who you pay under your promised rates and what you pay for the penalty rate is now 16 points, that's the largest it's ever been.
NORRIS: How do these credit card companies decide which customers get a rate hike? Are they only raising interest rates for customers with late payments?
HILLEBRAND: No. What I'm getting - consumers telling me, my rate went up, I can't get the bank to tell me why. They just said the computer picked you. If you make a mistake, if you have a late payment, you can get bumped in the penalty box and your rate can sky rocket. So the companies can already do that and they've already been doing that. What we're seeing is people who aren't in the penalty box still getting rate increases and getting told: We think you're a higher risk than we thought before, even though nothing has changed for the consumer.
NORRIS: The computer just picked you. That's not the kind of lottery you generally want to win.
HILLEBRAND: No, of course not. And the computer doesn't just pick you. The bank has a set of parameters that they put in, deciding who they want to increase. They're just not telling consumers what those criteria are.
NORRIS: Is there any room for negotiation?
HILLEBRAND: I'm not sure there is now. We used to tell consumers: Call up, be nice, patient, persistent, and ask for a change. I have several consumers who have contacted me and said, I called up and said, why is this happening to me, and they reduced my limit even more.
NORRIS: Well, Gail Hillebrand, thank you very much for talking to us. And I guess the message here is: As difficult as it is to wade through, read that fine print.
HILLEBRAND: And keep your balances low, if you can.
NORRIS: Gail Hillebrand is a senior attorney at Consumers Union.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.