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Letter to the editor

Battle fierce on credit rates

WASHINGTON - Check your holiday credit card bills closely. Some credit card companies are raising interest rates on good customers even if they pay down their balances, on time, every month. The reason they cite is that the customer's credit rating has fallen elsewhere.

That was a surprise to Janet Hard, a stay-at-home mom of two teen boys from Freeland, Mich.

Depending on her husband's salary as a steamfitter while she raised the children was financially difficult, Hard said. She said she paid more than the minimum payment on her Discover card every month, plus an $8.00 Internet fee.

Or so she thought. In February, Hard noticed that despite her payments, the balance was "barely moving."

A phone call to Discover solved the mystery, but not the problem: The company had increased her interest rate from 18 percent to 24.24 percent after running a spontaneous credit report that showed her other credit card balances and available credit on inactive accounts put the family at a higher risk of defaulting on their payments.

Most stunning, $3,478.39 out of $5,618 in payments had gone to Discover for interest accrued over the previous two years, Hard told the Senate Permanent Subcommittee on Investigations on Tuesday.

The panel's chairman, Sen. Carl Levin, D-Mich., is sponsoring legislation that would restrict interest rate increases to certain instances - such as at the conclusion of a low, introductory-rate period, contracts that have variable rates and when a cardholder violates the agreement with the issuer.

But congressional efforts to make all credit card companies discontinue the practice are running into a buzz saw of opposition from the banking industry. Roger Hochschild, president and chief operating officer of Discover Financial Services LLC, and other top credit industry executives told the Senate panel that card holders are notified of any changes, and are given time to opt out and pay off the card at the old rate, and contact the credit bureaus.

[Last modified December 5, 2007, 00:58:33]