Complaint Review: Dell Computer

Congress Calls Out Credit Card Companies
Rate increases, universal default decried; legislation threatened

By Martin H. Bosworth and Mark Huffman
ConsumerAffairs.com


Just in time for the holiday season, Congress has called the credit card industry on the carpet for another blistering hearing on the industry's more egregious practices, with promises that the industry will be regulated more strictly if it doesn't clean itself up.

Sen. Carl Levin (D-MI), chairman of the Investigations Subcommittee of the Senate Homeland Security and Government Affairs Committee, warned executives from Discover Financial, Bank of America, and Capitol One that "when a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit card issuer should have to do the same."

In his opening statement, Levin cited several cases of cardholders who were penalized by their card companies with higher interest rates because their credit scores had dropped.

He cited Bonnie Rushing, whose Bank of America card interest rate increased from 7.9 percent to 22.9 percent without warning in April 2007. Rushing claimed she had no idea why her rate increased so suddenly, and that she had received no warning or notification from Bank of America.

Rushing testified before the commitee that when she contacted Bank Of America's customer service department to get help, she was intimidated and felt threatened.

"When I was going through this process I could not believe that a bank could be so unwilling to help a customer with this type of an issue," she said. "I kept trying to find a way to understand why they were so uncooperative."

Rushing never found out why her card's interest rate spiked, but she was able to negotiate the rate back down to a fixed 7.99 percent with the help of the card's sponsor, the American Automobile Association (AAA). Levin said that Rushing's interest rate spiked because she had opened several store credit card accounts, which had caused her credit score to drop.

"She didn't realize then that simply opening those accounts and receiving those cards could negatively impact her FICO score and hike her interest rate," he said.

Janet Hard, a consumer from Freeland, Michigan, told the committee the interest rate on her Discover Card balance jumped from 18 percent to 24 percent, just because her credit score took a small dip.

A standard credit card policy called universal default results in credit card interest rates surging by double digit amounts, even if the consumer has never been late on a credit card bill. But any negative change in the consumer's credit score allows the credit card company to alter the interest rate on the card.

No surprises
Lawmakers shook their heads in dismay at the testimony, but in reality, the banking practices come as no surprise. Consumers writing to ConsumerAffairs.com have been complaining about credit card policies for years.

I applied for a Capital One "no-hassle" credit card on-line and a few days later received the card, stating in the terms there was a $300 activation fee for the $7500-limit card, Elizabeth, of Camp Verde, Arizona, said.

I am thankful I have found Consumeraffairs.com site. I am on maternity leave from work and cannot imagine how much money I would have lost for what is basically a scam. Thanks to this web page, I don't have to worry about it and burned the credit card.

I have had a 7.99 percent interest with this card for some time then out of nowhere it goes up to 21.99 percent, said Daryl, of Deland, Florida. I called in to ask what was going on and first I got shuffled from one person to the next--the last guy said that I had great credit ratings but they could not help me because even thou I always paid the minimum plus a good 50+ more, and was never late, I was a poor risk.

Playing defense
Bruce Hammonds, president of Card Services for Bank of America and former MBNA president, defended the use of credit scores to hike interest rates as "the core of the modern credit card system."

Risk-based pricing, he said in written testimony, "has democratized access to credit, providing more consumers with credit than ever before.

"Sophisticated internal credit scoring and risk management practices allow us and other banks to provide cards to customers whose credit scores previously might have disqualified them from receiving bank loans or other traditional forms of credit," Hammonds said.

"Repayment patterns are neither consistent nor predictable," said Capital One Card Services president Ryan Schneider. "The ability to modify the terms of a credit card agreement to accommodate changes over time to the economy or the creditworthiness of consumers must be preserved as a matter of fiduciary responsibility."

But Levin and the ranking committee Republican, Norm Coleman (R-MN), were unconvinced.

"Right now, credit card companies are the only lenders allowed to retroactively change the interest rate on a consumer loan where the consumer has met their borrowing obligations," Levin said. "This unfair credit card practice needs to stop.

Without a doubt, many Americans are frustrated by certain credit card practices, often finding themselves saddled with interest rates that skyrocket seemingly out of the blue, Coleman said. "[M]ore needs to be done to make policies transparent and predictable for consumers."

Ducking the guillotine
Levin had previously held hearings on abusive credit card lending practices in January 2007, where he derided the industry for adopting agreements and disclosures that were written at a "27th-grade level."

Levin and Claire McCaskill (D-MO) introduced legislation in May that would prohibit excessive fees and penalties on credit card payments.

The Federal Reserve advocated extending a consumer's "grace period" of notification of a change in card terms from 30 to 45 days, as well as making credit card disclosure statements clearer and simpler to understand.

In order to head off tighter regulatory mandates, many banks and lenders have been voluntarily scaling back some of the most hotly condemned practices.

Chase Bank's Card Services division recently announced that it would stop raising customers' interest rates based on information in their credit reports.

Citibank also pledged to stop the practice of "universal default," where a lender raises the interest rate on a borrower's credit card if they miss a payment on another account, even if they pay their credit card bills regularly.

Obama opines
Credit card industry reform promises to be a hot topic in the 2008 presidential campaign, thanks to increased visibility due to the Senate hearings.

Illinois Senator and Democratic presidential candidate Barack Obama announced earlier this week that he, too, is introducing legislation to curb the "predatory" aspects of credit card lending.

"Many credit card companies are tricking Americans into agreements they can't afford because that's how they make big profits," Obama said. "Well, no company's bottom line should come before what's right for the American people."

Obama's "Credit Card Bill of Rights" would ban rate increases on past debt, and would also prevent credit card companies from charging interest on transaction fees.

Obama, along with Sen. Ron Wyden (D-OR), is sponsoring legislation that would empower the Federal Reserve to set a "rating system" for credit cards. The cards would be graded on a five-star system, with "high-risk" cards receiving one star, while more consumer-friendly cards would receive five.

I can understand your frustration. This is something most Americans are facing. They want things in the present, and don't think about the ultimate cost. However, companies that extend credit are engaging in predatory practices. A 20 to 30% interest rate is very high. I heard a news segment that congress called in the heads of the major credit card companies to discuss these high interest rates and nickle and dime charges that are destroying many people. I Don't know whatever came of it. Unfortuanately, there is nothing that you can do in this case other than accept the very costly lesson. Maybe you do what I do: start making a profit from your credit cards. Buy only what you need and can afford with your credit card and get a card that rewards you with cash back. Also try a financial planning class at a community college. Knowledge is power. Best of luck to you.

It's quite obvious from your report as to where the problem lies. You can neither write nor speak proper English, therefore you cannot READ, either. If you can have someone read your contract to you, you would discover WHY you now have a high balance. My suggestion to you would be to return to school and take the courses in English that you neglected in school. Otherwise, you'll go through life wondering what is going on around you.

Some good information for you to know: Common sense would tell you...that if you have been paying the minimum payment, even if you have Dell's highest APR which is 29.99%...your balance would go down (although not by much). You are not telling everything in this report...probably because you have made late payments (resulting in a $30 late fee), this would result in a...say it with me...HIGHER BALANCE.

I will never understand why people open credit accounts, and dont understand how they work. My advice, get some common sense, and pay off what you agreed to.

You have no case...you would lose in court, as the details of your account would have been disclosed to you in writing when you opened it, and if you do indeed have multiple late fees, your complaint has absolutely no grounds. Dell is a big company, good luck with that.