Just Say No to Rate Increases

[ksluis62]

SavingAdvice user 'sofocused978' received a rate increase letter from Citi, and had to decide whether to opt out and close the account (while keeping the current repayment terms), or accept the higher interest rate. After researching options with customer support, he discovered that even if he did opt out and close the account, Citi would likely come back later and let him reopen the account. There seemed to be little reason to accept the higher interest rate.

This appears to be the next wave of tactics from credit card companies to exploit consumers. I'm certain they expect 95% of consumers to just accept the higher rates.

But my thought is, what would happen if the ratios were reversed, and 95% of people decided to opt out and close the account? Imagine the extreme panic when a credit card company sees that potentially 95% of the customer base is walking out the door! And the remaining 5% are high risk customers that can't get a card anywhere else! (If anybody is interested, I wrote more on this at blog-DueMinder-com).

I'm curious to hear people's thoughts. Would you opt out to avoid higher rates? Given the impact to your FICO score, is it wise to recommend that the average consumer opt out?

[disneysteve]

I think this will become a non-issue shortly. The new CC rules that Congress passed include a rule that they can't raise the rate on an existing balance. So if you have a balance at 0%, they can raise the rate on new charges but not on the money already charged.

The fact that they could change the terms after you borrowed the money has always been one of the main problems with credit cards.

[boosami]

Originally Posted by ksluis62

Would you opt out to avoid higher rates? Given the impact to your FICO score, is it wise to recommend that the average consumer opt out?

I think the average consumer should opt out as a rule of thumb. I think the majority of consumers can opt out with little or no long-term adverse effects.

Opting out loses all the available credit on that account and will negatively impact your FICO if it makes you utilization percentage go up significantly. The average consumer has multiple credit cards, so closing one (hopefully) will not significantly impact total utilization. Even if it does, the score will recover over time (and probably won't drop too much in the first place). Unless you need your FICO to be as high as possible for a specific loan in the near future, most folks should do what's best for APR and opt out. If you need that FICO for a home loan, get the loan before the opt-out date, and then opt out!

[minnie1928]

I've gotten the notices on my cards for the higher rates, but to me it doesn't really matter. I don't carry balances on them, I simply use them to get the reward points. Now, if they start screwing with the rewards....well then I'll get angry!!

[boosami]

Originally Posted by minnie1928

I've gotten the notices on my cards for the higher rates, but to me it doesn't really matter. I don't carry balances on them, I simply use them to get the reward points. Now, if they start screwing with the rewards....well then I'll get angry!!

I always pay on time too, so I would not need to opt out. On your other comment, they HAVE started to screw with rewards programs! My card rewards overall have gone down in quality. I've been losing things like free companion flights, free upgrades, free unlimited lounge access. Those "points" reward programs don't really do anything for me unless they can be transferred to mileage, hotels, or direct cash back (not gift cards!). The "catalog of items" always seems to cost you 15,000 points for an ugly lamp.

[ksluis62]

Originally Posted by disneysteve

I think this will become a non-issue shortly. The new CC rules that Congress passed include a rule that they can't raise the rate on an existing balance.

I believe the Credit Cardholders Bill of Rights was passed by the House, but did not make it through the Senate. It will be re-introduced this year. And it does look like it will stop this type of practice.

The new rules from the Federal Reserve Board stop this as well, but these changes don't take affect until 2010.

It looks to me that credit card companies are rushing to grab the opportunity before new rules take effect.

[boosami]

Originally Posted by ksluis62

I believe the Credit Cardholders Bill of Rights was passed by the House, but did not make it through the Senate. It will be re-introduced this year.

Those same ideas have been introduced and re-introduced every year since the mid 90's. It's been voted down so much I'm not convinced it will EVER pass. But we'll see what President Obama can do...

[disneysteve]

Originally Posted by boosami

On your other comment, they HAVE started to screw with rewards programs!

True. Marriott just changed their rewards program. They adjusted the number of reward points needed for a free night so that you now need more points than you used to.

[Ima saver]

I agree with Minnie. I pay my balances off every month and I just use the card to get a reward check once a month.

[TigerFan06]

Originally Posted by ksluis62

I'm curious to hear people's thoughts. Would you opt out to avoid higher rates? Given the impact to your FICO score, is it wise to recommend that the average consumer opt out?

My wife received a notice from Chase earlier this week about hers going up. I talked to one of the reps over there, and asked what needed to be done to reject the rate change and close the account. He told me quickly, then tried desperately to have me (her) keep the account open because it would look bad on her credit rating since she had the card for so long. I laughed at the guy and said that she hasn't worked in so long, that her score is probably pi$$-poor anyway. I thanked him, and hung up.

[cantretire]

I have a question. When you Opt out, with a balance, what happens then? Do you have to pay it off, or do you just keep paying it down, until it is paid off, but can't charge?

[kork13]

Originally Posted by cantretire

I have a question. When you Opt out, with a balance, what happens then? Do you have to pay it off, or do you just keep paying it down, until it is paid off, but can't charge?

Most companies that I've heard of are letting people keep their previous interest rate, but they can't charge anything to it anymore, and must pay it down until paid off, at which time the account is closed.

We'll see what happens down the road when all of the people who opt out suddenly have their cards closed... who knows, the CC companies may not even actually close them at all...

[ksluis62]

Originally Posted by kork13

Most companies that I've heard of are letting people keep their previous interest rate, but they can't charge anything to it anymore, and must pay it down until paid off, at which time the account is closed.

This is how the recent opt-out notices I received read as well. I pay under the current terms until paid off, then the account is closed. One of those accounts is under an intro rate. It will revert to a purchase rate as specified in the original intro offer, then will continue with that rate until paid off, then the account gets closed.