Credit card issuers are increasing rates, fees

Credit card companies are raising interest rates and fees seven months before new rules go into effect that will limit their ability do so, much to the irritation of Congress and consumer advocates.

JPMorgan Chase & Co., for instance, will raise the minimum payment required of some of its customers to 5% from 2% of the statement balance starting in August.

Chase and Discover Bank have increased the maximum fee charged for transferring a balance to the card to 5% of the amount, up from 3% and 4%, respectively. Bank of America Corp. last month raised the transaction fee for balance transfers and cash advances to 4% from 3%.

Card issuers including Bank of America and Citigroup Inc. also continue to cut limits and hike rates, which they have been doing with more frequency since January.

“This is a common practice and will continue to be common, because issuers can do these things for really no reason until February,” said John Ulzheimer, president of consumer education for Credit.com, which tracks the industry. “It’s what I call the credit card trifecta -- lower limits, higher rates, higher minimum payments.”

It’s not just the top card issuers making changes. Atlanta-based InfiBank, for example, will raise the minimum annual percentage rate it charges nearly all of its customers in September “in order to more effectively manage the profitability of our credit card account portfolio in a very challenging economic environment,” spokesman Kevin C. Langin said.

The flurry of activity, which the banks say is necessary to shore up their revenue losses, has irked members of Congress who passed a new credit card law that was signed by President Obama in May.

The law, among other things, would prevent card companies from raising rates on existing balances unless the borrower was at least 60 days late and would require the original rate to be restored if payments are received on time for six months.

The law would also require banks to get customers’ permission before allowing them to go over their limits, for which they would have to pay a fee.

Sen. Charles E. Schumer (D-N.Y.) once again Wednesday requested that the Federal Reserve invoke its emergency powers to place a limit on interest rate hikes.

“This is what many of us feared about a law that didn’t take effect right away,” he said. “It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law, and it is just plain wrong.”

Rep. Carolyn B. Maloney (D-N.Y.) said the recent rate and fee hikes were “unfair and deceptive and must be stopped.”

“Capricious actions like these are why Congress overwhelmingly passed, and President Obama signed, my credit card reform bill: to level the playing field on behalf of consumers,” she said.

Bank executives had warned that the new law would force them to increase rates and fees because it would keep them from properly managing borrowers’ risk. The argument is that if banks can’t raise rates on riskier customers, they will have to raise rates on all.

Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group, said there were two reasons for the rate increases.

First, he said, consumer credit scores, which banks use to determine if they should lend and at what price, have fallen.

Second, the cost of providing credit has increased.

“Once the new law is in effect, we anticipate a further reduction in the availability of credit and additional increases in the cost of credit,” he said.

Banks have been hit with a record number of charge-offs, or debts they give up on because the borrowers have no way of paying them back. In June, credit card losses hit a record 10.44%, according to Fitch Ratings. Increasing rates and fees is one way they can make up for lost revenue.