"Even as the Federal Reserve has cut interest rates, financial institutions have sharply raised rates for credit card customers — even those who pay on time — as they grapple with losses from other bad consumer loans.
This month, Washington Mutual (WM) told some credit card customers that it was raising their rates by as much as 100%. Discover (DFS) is lifting its penalty rate to 31%, effective May 1, and may apply that maximum to consumers who exceed their credit limit twice in a rolling 12 months.
That's why even responsible consumers whose credit scores haven't changed are being hit, says Joseph Ridout, a spokesman for Consumer Action, an advocacy group.
He notes that as banks lose money on mortgage loans, it's logical they would try to boost credit card profits. "If one end of your business is suffering, you look to the other end to pick up the slack."
To boost profits, some banks have also imposed higher fees on consumers for paying late, transferring credit card balances and withdrawing money from an ATM.
The danger for card holders is that as some struggle to pay bills, steep rate or fee increases could nudge them toward default. Credit card delinquencies — a precursor to defaults — have been climbing, and overall consumer loan delinquencies are at their highest since 1992.
"If every (card company) raises your rate, you might have to write the debt off or go into bankruptcy," says Dan Blanton, of Pevely, Mo. He was notified this month that his Washington Mutual credit card rate would nearly double, to 24%."-USA Today
