That's a fitting image of what the banks are doing just now. With epic unemployment numbers and record foreclosures gutting the Middle Class in this country, credit has also been contracting at a break neck pace, (an annualized 7.6% decline just last month). And the kicker? The banks are accelerating the exploitation of credit card holders, ratcheting up all the unfair practices that prompted congress to legislate prohibitions due to take effect next year.
Marketwatch reported this morning: "Credit-card issuers are hiking interest rates, penalties and fees in full force ahead of stringent new laws that take effect in February. In fact, some 400 credit cards from the nation's 12 largest bank issuers -- accounting for 90% of the $89.8 billion in outstanding consumer credit -- are still using most of the same tactics that the Federal Reserve has called "unfair or deceptive" and that will be outlawed in fewer than four months, according to a new report from the Pew Health Group's Safe Credit Cards Project."
99.7% of banks have boosted credit card interest rates, which have gone up an average of 20% since December of 2008. Some rates have spiked 30% to 50%, and one credit card company has even issued a card with a rate of 79.9% !!! Talk about a nice size twelve to the stomach! Beyond this, banks are still continuing all the unfair practices that I wrote about years ago here, like applying your payment to the lowest interest balance first. They've also decapitated credit lines, which had the effect of lowering millions of FICO scores. Then they based the rate hikes, fees, and penalty interest rates on the fact that your credit score fell. Recently they have set up fees for cardholders who don't use their cards enough, or in one case, charge at least $2400 per year. Is it any wonder that the default rate on credit cards is now 11.49%? People are fed up.
Marketwatch reported a Citibank spokesman as saying: "These actions are necessary given the doubling of credit card losses across the industry from customers not paying back their loans and regulatory changes that eliminate repricing for that risk." That is to say: "We're kicking the hell out of you now, for as long as we can, because deadbeats like you haven't been paying us back, and the cops are going to crack down on our loan sharking operation next year." My take on this earlier in this blog was exactly correct: The line is that since banks can't hang you with interest rates that only the mafia once charged, slam you with rate hikes applicable to the entire card balance, (effectively increasing the price on everything you have charged,) hike rates at their whim, delay your payment processing and then slap on a late fee, skewer you with over limit fees instead of declining a charge, apply your monthly payment only to the lowest interest balance first, and do a whole host of other nasty tricks, now they can no longer "manage risk."
Manage risk? These are the companies who over-leveraged themselves at 40 or 50 to 1 and loaded up their level 3 asset columns with metric tons of bad assets that they now refuse to declare or value by current market conditions. Manage risk? These are the geniuses who drove their own organizations to insolvency with outrageous derivatives and swaps that went bad. They lost, in true Carl Sagan fashion "billions and billions" of dollars with their reckless and irresponsible lending and securities schemes. But now, after legions of banking industry attorneys failed to lobby away this bill, the banks claim "it will reduce credit." Let me correct that right now--the BANKS will reduce credit, not the bill. And they have. After all their failed gambling games, they still want to pretend the real culprit behind the economic mess they created is YOU. They shake their heads solemnly, wag their fingers, and now, since they can no longer slam you with all these unfair and usurious credit card practices, they just won't extend credit.
The new law takes effect Feb 22. It was passed last May, but it gave the banks ten months before they had to cease and desist all the dirty practices that have gouged consumers for years. That's was just like giving the bad guys a year head start before you go after them, and look what they have done with that time.
