Aggressive rate increases on credit cards are threatening to push struggling consumers into financial ruin, accelerating home foreclosures and the nation’s descent into recession.
Across the nation, a growing number of consumers and financial experts are complaining that sudden credit card limit reductions and sharp interest rate increases are triggering a domino effect that makes it harder for consumers to juggle bills, stay in homes and avoid going broke.
No official data are available on how many people are being pushed into financial distress by credit cards rather than mortgages. But credit counselors, bankruptcy lawyers and legislators say banks increasingly are pummeling consumers for making the smallest payment error.
The shift comes as regulators and legislators have spent the last year pointing to toxic mortgages and overextended home buyers as the culprits behind the financial crisis. Credit cards, by encouraging spending rather than saving, have played a big role in loading up consumers with unaffordable debt whose rates and terms can change at any time.
“If people get charged 30 percent interest, that is going to push them over the edge,” says Sen. Carl Levin, D-Mich., who has co-sponsored a bill to crack down on credit card fees and rates.
The Federal Reserve is expected to release a rule shortly aimed at cracking down on hair-trigger jumps in card rates and fees.
Credit counselors, bankruptcy lawyers and other financial experts say that as banks aggressively raise rates and fees, they often strip consumers of what little disposable income they have left, threatening to become another drag on the economy.
Even so, 90 percent of card users will not see their interest rates go up this year, says Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, which represents the 100 largest lenders. Consumers who do, he says, “can attribute it to their credit history, the economy and the lack of (demand for credit-card-backed securities) in the market.”
