It’s another circle in the vicious cycle of this economic downturn. As the economy worsens and job losses increase, more people are unable to pay their credit card bills. Credit card issuers are raising rates and penalty fees, pushing people who can least afford it deeper into debt.
According to R.K. Hammer, banks will rake in nearly $22 billion in penalty fees this year. But card issuers aren’t just punishing consumers who pay late or not at all. Even people who have never missed a payment are getting hit with higher rates and fees. While interest rates have been falling in general, the average interest rate on credit cards has climbed to 14%.
The banks say they need the revenue to offset record credit card delinquency rates, but those higher rates and additional fees are squeezing cash-strapped consumers, kicking them when they’re already down and out of money. Many of the banks that are raising fees are also the recipients of taxpayer money via the TARP bailout program, including American Express, Bank of America, Wells Fargo and Citigroup.
That raises a sticky issue: Are banks who received TARP money gouging some of the very same customers that gave them billions of dollars in taxpayer bailout money? That’s a question that the TARP oversight board, headed by Elizabeth Warren is trying to answer. According to the Wall Street Journal, Warren’s committee is investigating the lending practices of institutions that received billions in public funds, following a rash of complaints about increases in interest rates and fees. The TARP money is supposed to be used to boost consumer borrowing, not crack down on people already struggling to pay their bills.
What do you think? Let us know. And you can also send your comments to Congress, which is weighing several pieces of legislation that would limit card issuers’ ability to hike fees.
– Donna Rosato