Credit Card Interest Rates Hit Home
The Federal Reserve's dramatic rate cuts were expected to make it cheaper for consumers to use credit cards. But credit card interest rates remain high and in many cases have even climbed, reports Washington Post Staff Writer Nancy Trejos in a front-page story today.
Her story also touches on several cases of consumers facing seemingly arbitrary, unexpectedly high increases in their rates without a reasonable explanation from their lender.
Many owners of small firms use credit cards to keep their businesses going. There's been an increase in small business use of credit lines and credit cards, according to Federal Reserve Board data. The use of business credit cards by small business owners jumped from 34 percent in 1998 to almost 50 percent in 2003. The Survey of Small Business Finances has been conducted by the Fed every five years since 1987, and the 2003 data is the most recent available. Small business groups that track credit card use have more recent data that report a similar trend.
Additionally, the Fed data show that very large lenders have been more aggressively marketing business credit cards during the last 10 years.
Congress is considering several bills that would crack down on lending practices. For example, Sen. Carl M. Levin (D-Mich.), chairman of the Permanent Subcommittee on Investigations, has proposed a credit-card reform bill and said: "The credit cards raise the rates when [the Fed raises the federal funds rate.] They should go down when interest rates go down."
Some card issuers like Citigroup have responded to lawmaker pressure by saying last year that it would halt a practice called "universal default" in which it penalized customers for making late payments to other creditors. In March, Chase will no longer increase rates as soon as a card-holder's credit score drops. But many financial industry observers say the banks and lenders aren't going far enough to help consumers.
Small Business Readers -- Do you rely on credit cards as a way to sustain your business? Do you think reform is needed in the credit-card industry?
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Posted by: Jessica Austin | February 11, 2008 4:21 PM
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