Last week, I wrote about a recent decline in credit card complaints. While I did not go so far as to predict that this short term trend would continue, I was hopeful that Obamas’ new credit card legislation was having a positive effect on the behavior of credit card companies. I was dead wrong.
Yesterday, two disturbing credit card complaints were posted, both of which are worth noting. The first came from a gentleman whose credit card account was closed for inactivity; the second came from a woman who missed a payment and had her interest rate increased to 29.99% – on a $19,000 balance!
First, let’s take a look at the gentleman whose credit card account was closed due to inactivity. This practice has been going on for some time and the logic behind decisions to close these accounts make sense: unused credit card accounts generate no revenue and require the issuer to hold reserves against the credit line.
However, what troubled me about this credit card complaint was the visitor’s customer service experience. He wrote:
“I spoke to two different supervisors and got conflicting stories. One tells me that my Credit rating will be affected and one tells me that it will not. The last supervisor even told me that it stated in the letter that our credit rating would not be affected. I read the letter back to her and nowhere in it did it say our credit rating would not be hurt.”
Of the two conflicting stories that came from the customer service department, the first one was correct. Having any credit card account closed will impact a person’s credit score. In this particular case, the credit limit was only $1,000, but the account was 15 years old. Having an older account closed can have a more pronounced effect on a credit score than having a newer one closed, as older accounts help determine the length of a person’s credit history.
Nevertheless, anyone with any knowledge of credit would know that every action that changes a person’s credit history will influence their credit score. Which is why I find the story of the second customer service representative reprehensible. One of two things occurred here: either the person lied to placate the customer or the person lied because they were told to. Either way, this type of behavior cannot take place at credit card companies.
Americans need honest, reliable information about credit and clearly they cannot count on credit card companies to provide this information. When the credit card bill of rights passes, nothing in that bill will address the problem of poorly trained customer service representatives. And nothing in that bill will bring those customer service jobs home and give them to unemployed Americans who could provide customer assistance.
Now, getting reliable information from customer service is a problem that has existed for some time. However, getting no assistance from customer service is a problem that has blossomed in the credit crunch. A prime example of this was brought to light by a recent visitor who accidentally missed a payment on her account. Before the missed payment, her interest rate was 11.24%. As soon as the payment was missed, it shot up to 29.99%.
When this woman called customer service, she was told to make her payment and call back in a couple of days. At that time, she was told, her rate would be adjusted back to Earth. When she called, there was no rate adjustment. In the past, one missed payment would be overlooked. Today, it is all a credit card company needs to justify close to a 300% interest rate hike.
I did some math on this scenario. Assuming she cannot qualify for a 0% balance transfer credit card and has to pay her bill off at a 29.99% default rate, she would have to pay $1,000 a month for two years to pay off her debt. In this short time, she would rack up over $7,000 in interest. If she paid $800 a month, it would take three years and cost more than $10,000.
Either way, being hit with a 29.99% default interest rate may push this consumer into bankruptcy, which demonstrates the ignorance of our credit card companies. At 11%, this consumer would have been able to continue paying her debt. Over time, her credit card company would have made a substantial profit off her interest. But now that her rate has been increased to 30%, there’s a good chance her life will be disrupted by a bankruptcy filing and the credit card company will only get a fraction of the money she owes them. In this situation, it looks like everybody loses.
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May 19th, 2009 at 12:10 pm
AMEX CANCELLED MY 2 ACCOUNTS AFTER ONE ELECTRONIC PAYMENT WAS RETURNED .NOT HAVING A LATE PAYMENT IN 4 YEARS ON BOTH ACCTS -I WAS SCHEDULED FOR SURGERY AND
had called to make a phone payment on the way to the hospital .one week later when the dust settled medically for me . the payment was returned by my bank as they couldnt contact me while i was in hospital and convalescing .then received a notice from amex my account payment was returned NSF and they have a “zero tolerance “for returned payments .bottom line
my 2 accounts were cancelled and my 150,000 membership miles were lost .
When i complained that this was too drastic they told me nothing to do .so payed down my regular card in full and then payed monthly card minimums .
meanwhile with prostate cancer looming and and having to conserve funds due to being unable to work for couple of months -couldnt access my miles when I really needed them .
plus the amount of dollars spent and payments always on time till i had a real crisis .they not only werent there for me but stepped on me also.
Thats a lowlife company to be sure
May 19th, 2009 at 12:12 pm
This is a great story for OBAMA to be sure
Michael
May 19th, 2009 at 1:22 pm
Michael,
First off, I want to wish you good health and a speedy recovery. I am truly saddened to hear that you have to do deal with this problem at this most difficult of times.
Your story is difficult to stomach-it brings to light the fact that credit card companies are behaving without a shred of human decency. I very much wish I could bring your story to a larger audience, but I will use this blog to write an open letter to credit card companies asking them to consider legitimate personal reasons before penalizing consumers for small mistakes.
Again, I wish you all the best and a swift recovery.
May 28th, 2009 at 4:10 pm
Comment removed to potentially incorrect information.
May 28th, 2009 at 4:22 pm
Nelly,
Thanks for sharing this. I will forward it to Michael.