What the $&^% is in the Water Cooler at Bank of America?

Okay – these guys are nuts. If you have a Bank of America credit card, you might have been unlucky enough to recently receive a mailing that tells you they’re about to raise your interest rate by an exorbitant amount (some cases more than double!)

First off, they’re a FORMER business partner of mine, and I think I can say they’re nuts especially since my identity remains rather anonymous. I could tell you stories, but I won’t. Instead, I’ll tell you if you got one of these mailings, don’t worry – it’s not because of anything you did or didn’t do (like not pay a bill). It's based on some secretive level of targeting that no one outside of the corporate walls understands.

They did this ballsy move because they told you they could, and you gave them your permission by way of accepting the terms and conditions that you unknowingly agreed to when you decided not to read your terms and conditions. The language you missed went something like this:

As required by law, rates, fees, and other costs of this credit card offer are disclosed here. All account terms are governed by the Credit Card Agreement. Account and Agreement terms are not guaranteed for any period of time; all terms, including the APRs and fees, may change in accordance with the Agreement and applicable law. We may change them based on information in your credit report, market conditions, business strategies, or for any reason.

This paragraph can be found at the very top of the terms and conditions, in itsy-bitsy type right above the interest rate section. The first part that bothers me is the part that says terms are not guaranteed for any period of time. But also note the last sentence, “We may change them (i.e APRs) based on information in your credit report, market conditions, business strategies, or for any reason“. Does anyone else find the last four words as haunting as I do? or for ANY reason? I can imagine the conference room at Bank of America now…

“Well, the kids have been hitting the lollipops a little too hard at our branches and it’s been hurting our bottom line. Jack, what do you think we should do about it?” “Well, Jim, why don’t we just double all of our cardholders interest rates? That should just about cover it!”

In all seriousness, there’s a lot of speculation about why they pulled such a stunt – they’ve got to level out their reserves after the sub-prime mess, they’re fattening up for their purchase of Countrywide, they’re trying to dump their dead-weight cardholders they inherited when they purchased MBNA (Mothers Brothers Newphews Aunts – a story for another day).

Whatever the reason, Bank of America is not only going to lose a lot of credibility in the marketplace. They’re likely to lose their shirts too when consumers catch on and plan a mass exodus when some other card company positions themselves as the savior by coming out with some offer that implies “Did Bank of America take advantage of you like a cheap whore at a bachelor party? How dare they. We’ll never do that to you. Sign on the dotted line and we’ll guarantee your low fixed rate for life”.

If you’re a victim of Bank of America’s seedy practices, I encourage you to visit our friends at Indexcreditcards.com where you can choose between 1,217 different cards to suit your needs. Choose carefully though – 26 are listed as Bank of America cards, and there’s a bunch more that are former MBNA cards. The good news is, there’s plenty more than one fish in the Cardfish sea. Finding what you need is like, well, shooting fish in a barrel.

CardTuna

How Low Can You Go?

The month of January 2008 was a tumultuous one, with the market bringing some huge upsets followed by a double dose of welcomed news by the Fed. First, to prevent a very ugly day on Wall Street, Uncle Bernanke cut the Fed Funds rate by ¾ of a percent after a bout of global panic that was brought on by fears of impending doom in the US financial markets. Then, during the Fed’s regularly scheduled meeting, Bernanke delivered what consumers and investors alike were expecting – another ½ percent cut to the current 3.0%.

So, what does that mean to all you credit card wielding fiends? When will your credit card’s interest rates fall and by how much?

First of all, your card interest rates are tied only loosely to the Fed Funds rate. They’re more directly tied to the Prime Rate, which as of my authoring of this article, is 6.0%. The Prime Rate, by definition, is the rate that banks charge their most creditworthy customers. Banks borrow the money at 3%, and loan out at Prime or Prime plus x%, y% or z%.

What this means for you and your credit card interest rate is dependent on a few things.

1) Do you have a variable rate card or fixed rate card?

2) What is your creditworthiness (or lack thereof!)?

3) And, do you have a floor? (Newton sure hopes so)

First, if your card is a fixed rate card, you can stop reading and go find yourself a variable rate card, unless of course your fixed rate is so good that a variable card can't currently beat it. Being tied to a high fixed rate when rates are decreasing at a time like this is just irresponsible, unless of course you’re paying your bills in full each month and you get some really great benefits from your card. By switching to a variable rate card when the Prime Rate is on the down-low, you’ll likely be able to find a better rate than what you’re paying now on a fixed rate card.

Next, many credit cards have tiered rates based on their various customers’ creditworthiness. So, if you’re a goody goody and are doing everything right, you’re probably in the “Prime plus x%” category. If you’re good but not perfect, you’re “Prime plus y%” and if you stink at paying your bills, you’re a “Prime plus z%”. Here’s an example of what I mean, straight from the pages of the Toys ‘R Us & Babies ‘R Us Mastercard (yeah, I’ve got rugrats).

Variable rate information

The following APRs may vary monthly based on the Prime Rate:^c

Purchase and Balance Transfer APR: The Prime Rate plus, as applicable, 6.99%, 10.99%, or 15.99% for outstanding and new balances after the introductory period.

^cThe "Prime Rate" is the highest prime rate published in the Money Rates column of The Wall Street Journal two business days before the Closing Date on the statement for each billing period.

So, if you’re a Prime plus x%, you’ll be paying 6.0%+6.99%, or 12.99%. If you’re Prime plus y%, you’re shelling out 6.0%+10.99% or 16.99%, and if you’re a credit-challenged, you’re forking over 6.0%+15.99% or 21.99% APR.

As for my third point, “Do you have a floor?”, I’m not talking about that questionable carpet that is host to 25 different beer stains, toe jam, dirt, dust, and a menagerie of invisible insects trying to keep warm. I’m talking about a rate floor. Simply put, a rate floor is a way for your credit card issuer to make more money when interest rates fall. They do this by limiting the amount they will reduce your interest rate when there is a decrease in the Prime Rate. My understanding is that about a third of the credit card programs out there have rate floors. Here’s an example straight from the published Terms and Conditions of one of the co-branded credit cards that I manage in my day job (to remain nameless):

Variable Rate Information. Your APR may vary. The rate is determined monthly by adding the Prime Rate and:

• 3.74%, 7.74%, or 13.74% for Purchases and this rate will not be lower than 11.99%, 15.99%, and 21.99% respectively.

The information above was published back in September of 2007 when the Prime Rate was at 8.25%. That’s how the issuing bank arrived at the various rates above.

Now if we were working with today’s Prime Rate and no rate floor, the three rate tiers would be 9.74%, 13.74% and 19.74%. However, because of the additional language “and this rate will not be lower than 11.99%, 15.99%, and 21.99% respectively”, the bank just locked in a 2.25% APR raise for themselves! So, while consumers who use this card are eagerly waiting for their interest rate to drop, it just ain’t gonna happen. Instead, the bank will pocket the spread and, well, take it to the bank!

The overall point I’m trying to make here is that you need to understand the Terms and Conditions that your credit card publishes. They’re usually printed in mouse type and they’re intentionally written to cure insomnia. Plain and simple, the banks don’t want you to read them but, by law, they have to give them to you. So, take the time to understand how your current cards work, and make changes if you’re not happy with them. And if you’re not in the mood for heavy reading, just pick up the phone and call your bank – they have to tell you how your interest rates are calculated. If they tell you that you have a high fixed rate or a variable rate with a floor, tell them that CardFish sent you, then tell them to go pound sand!

Good Luck!

CardTuna

Late payments will imprison or impose capital punishment on your rewards

You already know all the good reasons to pay your credit card bills on time, like maintaining or improving your credit score, avoiding ridiculous rate hikes and late fees, not to mention steering clear of unwanted notices and embarrassing phone calls from collection agencies. But there’s another reason you want to pay your bill on time, and that’s the access to your rewards you’ve earned.

Typically, credit card companies will not only restrict use of your card when your account is in past-due status (which prevents you from earning rewards points, let alone access to your credit line). In addition, your issuer will likely prevent you from redeeming the rewards you’ve already earned!

This ruling is often revealed in your card’s terms and conditions or program disclosures with language like the following examples:

Bank of America’s Worldpoints language: “To participate in the Program, you must (a) maintain a Card that is open and has charging privileges, and (b) be an individual (no corporations, partnerships, or other entities)”

Capital One’s language: “Your account must be open and in good standing in order to redeem, which means it isn't past due, overlimit, fraudulent, restricted, part of a consumer credit counseling program or in a bankruptcy settlement”

Citibank’s language: “To be eligible to earn and redeem [rewards], your [card type] account must be open and current and must not be in default. Citibank may revise or terminate the [card type] [Reward] Program at any time with 30 days prior written notice”

Even though these are your rewards that you’ve rightfully earned over months and years of using their product and paying your bill on time, issuers will invariably lock-up 100% of your rewards bank while your account is in past due status.

Here’s another sneaky catch to watch out for: Some card companies, like Capital One, will even revoke the points you earned in the billing cycle where you made a late payment! Their terms and conditions language is: “If a late fee is charged to your account, you will lose any miles applied to your rewards balance during the billing cycle containing the fee”. So, say you have a big charge like a $2,000 car repair that you throw on your card. Then you pay late that month – all of the points you earned on that charge, and all other charges in the month – they take away from you!

The moral of the story is, if you’re racking up points at a good clip or you’re planning to cash-in your rewards any time soon, make sure you keep your account in good standing (you should be doing this anyway)!

Note that there ARE a few exceptions to this rule. For programs like airline mile and hotel credit cards whereby points accumulated on a monthly basis are subsequently deposited into your airline or hotel loyalty program account, you will be able to access these rewards because they no longer reside with your credit card company.

Unfortunately, and by design, the credit card companies’ Terms & Conditions legal disclosures are less interesting than watching paint dry or grass grow. The reason the language is usually printed in gray 4 point type and includes paragraphs with no less than scores of lines bunched together is because they don’t really want you to read it, but the law says they have to provide those rules to you when you apply for a card.

To understand the various rules of your different credit cards or the cards you’ll apply for in the future, you need to familiarize yourself with this very important language. Hopefully someday, for everyone’s sake, we’ll all have a resource that can provide the “Cliff’s notes” versions in simple, plain English!

Until then, consider your T&C’s a great cure for insomnia.

CardTuna