Sticker Shock

[wintergreen48]

OK, I've mentioned before about how I got myself canned from Capital One a year ago, and went onto a severance thingie, and then, towards the end of severance took on a contractor job, which resulted in Capital One offering me a new permanent job that starts next Monday (the contractor job ends on Friday). One of the great things about the severance package is that it came with medical benefits, that is, while I was technically on COBRA, Capital One subsidized it, so that I paid what a 'real' employee would be paying, for the full twelve months that I was on severance (which includes one month in which I doubled-dipped with the contractor gig).

The sticker shock? Well. My severance ended this month, and with it the COBRA subsidy, so I now have to pay full freight (for just this one month-- when I go back on the payroll as a blue-badge employee rather than a yellow-badge contractor, I will go back onto the regular (subsidized) medical plan). Under the subsidy, my cost was $188/month, but without the subsidy it does not go up, it does not increase, it BALLOONS to $846/month (which is more than $10,000/year, which is more than my annual salary at my first legal job (I clerked for a judge). Man. I almost wish I would get sick or something over the next couple days, just so I could take advantage of the high-priced program.

One of the oddities of my situation is I am eligible to retire from Capital One (the rule is that you must have worked at least ten years after your 45th birthday, and you must be at least 55; I am not sure why that is two separate requirements, since I cannot figure out how you could have worked there for 'at least ten years after your 45th birthday' and NOT be 'at least 55,' but then, math was never my strongest point). As best I can tell, the chief benefits to 'retirement' from Capital One are (1) I would get to receive payments from the pension plan (which they discontinued three months after I started, when they jacked up the 401k, so that my vested interest in the plan would give me a pension of about $4/month, which I could enjoy for the rest of my life), (2) I would get the benefit of otherwise unvested stock options and such (but they gave me this last year-- they paid me that stuff automatically based upon my retirement eligibility, which ticked off my former manager, who was NOT retirement eligible, and who had the same stock options stuff that I had, and who lost it all because it does not vest for non-retiree losers who get fired, I mean, non-retiree employees whose jobs are eliminated as part of ongoing restructuring operations), and (3) you can participate in the health plan. The 'participate in the health' plan is the cool part: they currently provide retirees with the same subsidy as employed associates (i.e., medical insurance as a retiree would cost me $188/month rather than $846/month). As it happens, CapitalOne is phasing out that retiree benefit, over a five year period: the 100% subsidy applies for everyone who became retirement-eligible as of 12/31/07, then dropped to an 80% subsidy for those who became retirement-eligible as of 12/31/08, and it will drop to a 60% subsidy for those who become retirement-eligible as of 12/31/09, then drops to a 40% subsidy for those who bocame retirement-eligible as of 12/31/10, then drops to a 20% subsidy for those who become retirement-eligible as of 12/31/11, then drops to a -0- subsidy for those who become retirement-eligible after 12/31/11. Why does this matter to me? I hit my '10 years after age 45/reached age 55' benchmark on 11/23/07, which was nine days before I went onto 'redeployment,' and less than six weeks before the subsidy began to drop. If Capital One had not offered me the permanent job that starts next week-- and if I had not gotten something with someone else that had medical benefits-- then I would have 'retired' this month, just for the medical benefits.

What a world.

[MarleysGh0st]

What a world.

Ah, well, this is the industry that threatens to increase their customers' interest rates from merely excessive to truly outrageous, should they be a few days late with a couple of payments.

I've been wondering, while getting recent notices of further amendments to these draconian terms, why the federal government isn't telling the banking industry that "what's sauce for the goose is sauce for the gander".

[earendel]

OK, I've mentioned before about how I got myself canned from Capital One a year ago, and went onto a severance thingie, and then, towards the end of severance took on a contractor job, which resulted in Capital One offering me a new permanent job that starts next Monday (the contractor job ends on Friday). One of the great things about the severance package is that it came with medical benefits, that is, while I was technically on COBRA, Capital One subsidized it, so that I paid what a 'real' employee would be paying, for the full twelve months that I was on severance (which includes one month in which I doubled-dipped with the contractor gig).

The sticker shock? Well. My severance ended this month, and with it the COBRA subsidy, so I now have to pay full freight (for just this one month-- when I go back on the payroll as a blue-badge employee rather than a yellow-badge contractor, I will go back onto the regular (subsidized) medical plan). Under the subsidy, my cost was $188/month, but without the subsidy it does not go up, it does not increase, it BALLOONS to $846/month (which is more than $10,000/year, which is more than my annual salary at my first legal job (I clerked for a judge). Man. I almost wish I would get sick or something over the next couple days, just so I could take advantage of the high-priced program.

One of the oddities of my situation is I am eligible to retire from Capital One (the rule is that you must have worked at least ten years after your 45th birthday, and you must be at least 55; I am not sure why that is two separate requirements, since I cannot figure out how you could have worked there for 'at least ten years after your 45th birthday' and NOT be 'at least 55,' but then, math was never my strongest point). As best I can tell, the chief benefits to 'retirement' from Capital One are (1) I would get to receive payments from the pension plan (which they discontinued three months after I started, when they jacked up the 401k, so that my vested interest in the plan would give me a pension of about $4/month, which I could enjoy for the rest of my life), (2) I would get the benefit of otherwise unvested stock options and such (but they gave me this last year-- they paid me that stuff automatically based upon my retirement eligibility, which ticked off my former manager, who was NOT retirement eligible, and who had the same stock options stuff that I had, and who lost it all because it does not vest for non-retiree losers who get fired, I mean, non-retiree employees whose jobs are eliminated as part of ongoing restructuring operations), and (3) you can participate in the health plan. The 'participate in the health' plan is the cool part: they currently provide retirees with the same subsidy as employed associates (i.e., medical insurance as a retiree would cost me $188/month rather than $846/month). As it happens, CapitalOne is phasing out that retiree benefit, over a five year period: the 100% subsidy applies for everyone who became retirement-eligible as of 12/31/07, then dropped to an 80% subsidy for those who became retirement-eligible as of 12/31/08, and it will drop to a 60% subsidy for those who become retirement-eligible as of 12/31/09, then drops to a 40% subsidy for those who bocame retirement-eligible as of 12/31/10, then drops to a 20% subsidy for those who become retirement-eligible as of 12/31/11, then drops to a -0- subsidy for those who become retirement-eligible after 12/31/11. Why does this matter to me? I hit my '10 years after age 45/reached age 55' benchmark on 11/23/07, which was nine days before I went onto 'redeployment,' and less than six weeks before the subsidy began to drop. If Capital One had not offered me the permanent job that starts next week-- and if I had not gotten something with someone else that had medical benefits-- then I would have 'retired' this month, just for the medical benefits.

What a world.

What's in your wallet?

[ToLiveIsToFly]

What a world.

Ah, well, this is the industry that threatens to increase their customers' interest rates from merely excessive to truly outrageous, should they be a few days late with a couple of payments.

Or even if they're not.

[Bob Juch]

What a world.

Ah, well, this is the industry that threatens to increase their customers' interest rates from merely excessive to truly outrageous, should they be a few days late with a couple of payments.

I've been wondering, while getting recent notices of further amendments to these draconian terms, why the federal government isn't telling the banking industry that "what's sauce for the goose is sauce for the gander".

I just got a letter from CapitalOne today saying the interest rate on one of the two cards I have from them was going up. I never carry a balance so don't care, but have to wonder why and why just one card.

[KillerTomato]

So, basically you're saying that you're subsidizing the enormous bonuses of the executives, right?

I'm very glad you're headed back full time. I'm still in the frustrated contractor stage myself, since my company (a large energy concern headquartered in your town, btw) is in the midst of a loooooong, looooooong hiring freeze. OTOH, I'm very happy with my job, coworkers, pay, and my own health-care is fairly cheap, so even though I still have the red-stripe badge rather than the blue-stripe badge, I can't complain too loudly.

[BackInTex]

So what happens if you don't pay the one month of unsubsidized COBRA? Nothing. I wouldn't pay it. Not until you had a medical need during that month that cost more than the premium and co-pay.

You can go 60 days uncovered and still retain your continuous coverage status.

[SportsFan68]

So what happens if you don't pay the one month of unsubsidized COBRA? Nothing. I wouldn't pay it. Not until you had a medical need during that month that cost more than the premium and co-pay.

You can go 60 days uncovered and still retain your continuous coverage status.

Not unless you pay for it.

If you don't need to avoid the pre-existing conditions exclusion, no problem.

But if you do need to avid it, you're right, you have 60 days, but you still have to pay the premium to maintain continuous coverage.

[peacock2121]

We pay $818.26 per month for the two of us.

Welcome to the world of the self-employed prices for health insurance.

It would be even more if we weren't considered a small business (2 to 50 employees).

[minimetoo26]

We got the notice they're dropping POS for small businesses. It's either going to be HMO City or higher payments for us in June.....

[peacock2121]

We have been using Oxford Freedom, so if we stay 'in network', we are fine. No gatekeeper, so we feel better about that.

[minimetoo26]

Ours is an Optima POS, which is great for having a kid who sees a specialist occasionally. It was double great when Stephen was seeing a neurologist, too. Now it's not so much an issue since both kids don't have any extracurricular medical issues, but it's still good to know you can go anywhere, and it's covered without a referral or phone call or anything.

I hope the POS doesn't go sky-high, so I can avoid the HMO deal. Especially with all the travel we do. So far, so good on that, but I like to be prepared for the worst.

[BackInTex]

So what happens if you don't pay the one month of unsubsidized COBRA? Nothing. I wouldn't pay it. Not until you had a medical need during that month that cost more than the premium and co-pay.

You can go 60 days uncovered and still retain your continuous coverage status.

Not unless you pay for it.

If you don't need to avoid the pre-existing conditions exclusion, no problem.

But if you do need to avid it, you're right, you have 60 days, but you still have to pay the premium to maintain continuous coverage.

No you don't.

If you are covered by an employer plan, then move to COBRA (or nothing) for 60 days, then are covered by an employer plan, and you choose not to pay the COBRA premium, your past employer's certificate of coverage expiring day 0 and your start of coverage from your new employer on day 60 will require your new employer to accept any pre-existing conditons. You do no lose your 'continuous coverage' status until you are not covered for 63 consecutive days.

So, why pay $1,600 for 2 months of COBRA unless you have a claim during those 2 months that cost more than the $1,600 + your deductable + co-pay?

Of course, you want to be absolutely sure you are covered by an employer plan on day 63.

And under COBRA they can't drop coverage for non-payment until 60 days past due. So you can actually decide after the 60 days (to see if you have a claim or are not covered by a new employor) to decided to pay the back premiums. (this piece I'm not absolutely sure of the # of days so check with an HRIS specialist).

[SportsFan68]

So what happens if you don't pay the one month of unsubsidized COBRA? Nothing. I wouldn't pay it. Not until you had a medical need during that month that cost more than the premium and co-pay.

You can go 60 days uncovered and still retain your continuous coverage status.

Not unless you pay for it.

If you don't need to avoid the pre-existing conditions exclusion, no problem.

But if you do need to avid it, you're right, you have 60 days, but you still have to pay the premium to maintain continuous coverage.

No you don't.

If you are covered by an employer plan, then move to COBRA (or nothing) for 60 days, then are covered by an employer plan, and you choose not to pay the COBRA premium, your past employer's certificate of coverage expiring day 0 and your start of coverage from your new employer on day 60 will require your new employer to accept any pre-existing conditons. You do no lose your 'continuous coverage' status until you are not covered for 63 consecutive days.

So, why pay $1,600 for 2 months of COBRA unless you have a claim during those 2 months that cost more than the $1,600 + your deductable + co-pay?

Of course, you want to be absolutely sure you are covered by an employer plan on day 63.

And under COBRA they can't drop coverage for non-payment until 60 days past due. So you can actually decide after the 60 days (to see if you have a claim or are not covered by a new employor) to decided to pay the back premiums. (this piece I'm not absolutely sure of the # of days so check with an HRIS specialist).

BiT is right!

I was wrong!

The laws changed. What I said usta be, isn't any more.

[wintergreen48]

What a world.

Ah, well, this is the industry that threatens to increase their customers' interest rates from merely excessive to truly outrageous, should they be a few days late with a couple of payments.

Or even if they're not.

Since the topic has come up, I will comment on this at length, since I do know a bit about it. You might want to get a cup of coffee to stay up for this...

First off, there are four basic sources of income to a credit card company, three involving the customers and the fourth involving the merchants who accept the card:
(1) they collect interest from customers who pay interest on their balances (but if you pay off your balance each month, then there is no income from this source);
(2) they collect fees from customers, including annual membership fees, late fees, and overlimit fees. But if you are a really 'creditworthy' consumer borrower, then there is no income from this source, since creditworthy borrowers-- people who manage their credit properly-- do not pay late and do not go overlimit (and thus, never pay late fees or overlimit fees), and they usually have no problem getting credit (and so, do not pay annual membership fees (exceptions: charge cards like the traditional American Express card, which are not actually 'credit' cards because you have to pay off the balance every month, do charge annual fees, as do some 'rewards' cards that give you some perk like airline miles that you hope will offset the fee);
(4) they collect a portion of the interchange fee that the credit card interchange charges from a merchant who honors the credit card (if you charge $100 on your MasterCard at the RichU bookstore, MasterCard only pays RichU about $97, keeping $3 as the 'interchange' fee, which RichU eats as part of its cost of doing business for allowing customers the convenience of using a credit card; MasterCard splits the interchange fee with the lender, so the lender gets perhaps $1.50 from that transaction; Discover and American Express own their own interchanges, and typically charge a higher interchange fee than do the card associations-- MasterCard and Visa-- which is one reason why fewer merchants accept Discover or AMEX than MC and Visa).

(3) they can make money from that crap in your monthly statement: if you buy the trinkets and trash (the stuff that the credit card lenders sell on behalf of third party vendors, like the 'Obama Commemmorative Coins' or the ginzu knives or whatever else might be in the envelope) or if you buy any of the 'special services' (like credit card protection or credit card insurance, which are also actually products of third party vendors), the credit card company gets some small piece of the action, I mean, a small commission, from the third party vendor.

So, in the 'real world,' how does the credit card business actually finance itself and actually make any money? NOTE: if you think that credit card companies charge too much, keep in mind that NONE of them are currently profitable-- Capital One had a loss for the first time in its history last quarter-- so we aren't really talking about 'excessive' interest and fees, at least, not right now.

There are three components to the costs of doing business as a credit card lender (or any other type of lender, for that matter):
(1) the actual cost of doing business, that is, the actual overhead cost when it makes you a loan, in terms of the cost of funds (they need to raise the money from somewhere in order to lend it to you), the costs of the buildings, the cost of mailing stuff, employee costs, etc.
(2) the risk of loss, that is, if you don't repay what you borrow, they have to get the money back somewhere (again, the money that they lend you was borrowed from someone else, and they have to repay it, with interest, to their own lenders).
(3) a reasonable profit. While one can always argue about what is in fact 'reasonable,' any 'reasonable' person would agree that the lender should make at least SOME profit, otherwise, why would it be in business? Any profit that the lender does earn can of course be applied in any one or more of three different ways: it can reinvest in the business, for expansion purposes; it can give money to its investors in the form of dividends (which Capital One did not do at all until two years ago; before that, all of its profits were reinvested in the business, which showed up in the form of stock price appreciation-- which has since disappeared-- which was the the same business model that Microsoft and other tech businesses used to follow), or it can give the profits to its employees in the form of bonuses or salary increases.

The first component-- the actual cost of doing business-- is largely fixed. Lenders can try cost-saving measures to reduce this number (this is why Capital One fired my ass last year), but if the business is truly, absolutely, perfectly efficient, that number cannot be adjusted, it is what it is. I don't have the actual current figures, but as a ballpark number, I believe that the 'typical' cost of opening and maintaining a credit card account for the average credit card customer is something like $80/year, so the credit card lender needs to make about $80/year per credit card just to break even (even assuming that no one ever defaults, and even if they ran the business as a non-profit, public service). If you do not pay interest (because you pay your credit card balance each month), and if you do not pay any other direct fees (if you do not have a card that requires an annual membership fee, and if you never pay late and never go over-limit so that you do not incur any of those fees), and if you never buy the trinkets and trash, then the only source of income to the credit card lender is the inter-change fee. Assuming that the lender makes about 1.5% on the interchange, then the 'break-even' point is something like $5,333, that is, you need to put at least $5,333 in purchases on the card in order for the company to not lose money on you..

Well, not every customer puts that much money on every one one of their credit cards and repays it in full: some customers hold a card and spend less than the break-even amount (which means that they cost the company more than they are really worth), while other customers borrow money and never repay it (which means that they REALLY cost the company more than they are really worth). So the lenders need to charge interest and fees on the customers who actually do pay interest and fees, in order to make up the numbers. This, by the way, is why you get those credit card access checks and cash advance offers from the credit card company-- they charge a transaction fee on those things, which is just, um, money in the bank.

Look now at the interest portion of the loan (which gave rise to this dissertation). The actual differential interest rate that a lender charges one customer rather than another is largely a factor of the customer's 'risk': while two of the three basic components to the interest charge are essentially the same for all customers (that is, the cost of doing business and the anticipated profit are usually prorated across the board to cover everyone, so that there is some basic fixed rate of interest that would be applicable to everyone), the third component-- the risk that customer X will not repay the loan-- is specific to customer X, and the difference in the interest rate that the lender charges one customer compared to another customer is related directly to the different risks that the different customers present. I think most people would agree that riskier people should pay more, simply because they are more likely to cost more (the alternative is to charge EVERYONE the same interest, so that the good borrowers, whom you really want, subsidize the bad ones; while this seems to make for good government policy-- the portion of the Stimulus Package for bailing out homeowners facing foreclosure pretty much forces good borrowers who did not take out stupid loans to subsidize the defaulting people who did-- it does not make for good loan policy). So let's take it as a given that riskier borrowers, as a group, will be charged higher rates of interest and more fees) than less risky borrowers, as a group, to cover their extra risk of loss.

A lot of ghostly people get annoyed that lenders raise interest rates even though the customer has never been in default, or perhaps has not been in default 'too much' (there are people who actually believe that there is nothing wrong with being overlimit and past due all the time, so long as 'sooner or later' they make it up). I think that everyone would agree that the biggest risk to a lender is that a borrower will not repay the loan, and that this risk is greatest with a borrower who goes bankrupt and has the debt completely discharged in bankruptcy. So, given this, why does it make sense to increase an interest rate on a borrower who has not actually defaulted? The answer is: as a practical matter, most people who file for bankruptcy are NOT in default at the time that they file-- typically, the very first actual default that a credit card lender sees from a bankrupt borrower is the notice of bankruptcy, which usually comes the very first month that the borrower stops making payments. And if the lender waits for THAT, then it is too late, because the lender canNOT do anything about the loan other than to file a useless claim in the Bankruptcy Court, and wait for the Notice of Discharge (that tells the bank that it will not get back dime one). And, of course, some borrowers who do not file for bankruptcy also ultimately default and not pay off the loan, and the bank cannot do anything about them because they are judgment proof (i.e., they got nuthin', and the reason why they do not file bankruptcy is simply that they do not have anything to protect, and don't care, because they know the bank cannot do anything about it). To deal with this, every (good) lender has risk scoring models that help it determine who is the greater risk and who is the lesser risk, and these modesl are based upon a customer's actual behavior. You can demonstrate, and prove mathematically, that there is a statistically greater likelihood that a person who does 'certain' things is more likely to go into default (and thus, is a greater risk) than is a person who does not do 'those' things, or who does different things. The scoring models look at a lot of different parameters, including stuff like spending patterns, and changes in spending patterns, and where money is spent; how a customer uses cash advances; how a customer uses credit card access checks; whether a customer uses the card overseas, and in which countries they use it; even the kinds of places where the customer actually spends money can impact credit (I do not know for sure that this is true, but I have heard through my grapevine outside of Capital One that some lenders-- and possibly some of the companies that develop credit scores-- take into account how a customer uses a credit card at a liquor store; I suspect that this is a negative). Many of these kinds of factors are totally non-intuitive, that is, there is no obvious reason why doing one thing rather than another is a credit 'problem,' but statistically they are good predictors of future behavior (I would bet cash money that some lender, somewhere, has a model that shows that a person who responds to a credit card offer that is written in black type on white paper has a different risk potential than a customer who responds to the identical offer that is written in blue type on gray paper, and they are both probably different from the customer who responds to the identical offer that includes a picture of a kitten). I have not had the rate increased on any of my cards, but I have found that my FICO score (the basic credit score that most larger lenders use, at least in part) has dropped from 829 last March to 801 last week (both numbers are in the top 1% of borrowers, but one is higher-end than the other); FICO does not know that I was laid off last year and that I lived off severance all year long, but FICO does know that I opened up a new credit card account last summer (I got my first Capital One card in July, as it happens) and I bought a new Camry when my van died in November and I financed the purchase (with, as it happens, a 0% loan from Toyota, a very nice rate which I received based upon the combination of my credit score and their desperate need to sell cars); those two credit applications lowered my score a bit, simply because 'new loans' are triggers to the scoring model that suggest that I am at least marginally more risky than I was before.

Anyway, the bottom line is that if a lender has increased your rate, but not someone else's (that is, the lender didn't just do an across-the-board rate increase), or has increased the rate on one of your credit cards but not on another, then what has probably happened is that you have done 'something' that triggered the lender's risk scoring model to assess you at a higher risk than you were before. It could be something that seems totally innocuous to you, but the model says differently, and the model is considered to be almost as infallible as the Pope.

[MarleysGh0st]

It was somewhat unfair to take a thread with your grumble about insurance and to divert it into my own grumble about credit card rates. I thank you for your detailed reply. I have read it all---well, only skimmed some of the lengthier paragraphs, looking, perhaps with unreasonable paranoia, for the hidden fine print about "customer pledges as collateral a pound of flesh and their firstborn child".

I'll offer a reply later, perhaps after lunch.

In the meantime, I confess that I am one of those "deadbeat" customers who always pay off the monthly balance in full, never incur a late fee, and never buy any of the advertised junk. My grumble, therefore, was strictly generic, rather than personal.

I do use my CapOne NoHassle cash™ card as my primary credit card these days, BTW.

[ghostjmf]

I never use cash advances. I always pay my cards' total amounts on time. I buy some liqueur, as opposed to liquor, about every 2 years.

I put all my airline tickets on credit cards (of course; how else would I be paying them?).

Obviously, I am a very high-risk person, because one of my cards has raised my rates.

[mcd1400de]

Obviously, I am a very high-risk person, because one of my cards has raised my rates.

No, you're not necessarily "very high-risk" at all, merely at least somewhat "riskier" (based on the holy risk-scoring model) than you were before. Those models are much more relative than absolute, at least for now.


That said -- I suspect we will see the frequency of such "reprices" (as those of us in the card biz call them) to increase sharply in the next several months. A main component of the new credit regulations due to go into effect next year, of which Wintergreen has previously written, will govern how such reprices are applied to current balances in a way that will very significantly impact card companies' income.

Currently, if you are carrying a balance and a credit card company raises your rate, the only way you are able to keep the balance at the lower rate is to "opt out" -- to reject the new terms. But to do so, you must close your account; you can still pay it off at the old rate either immediately or over time, but you cannot make any new charges. If you do not want to close your account, however, then the new higher rate will apply to all non-promo balances currently on the account. If you're carrying a large balance, the resulting increase in finance charges can get pretty hefty... which, naturally, we CC companies like.

That's why CC companies used to reprice anyone who showed signs of having trouble getting new credit, even if their record with us was spotless. If they couldn't open a new account elsewhere in order to transfer their balance away, they'd be all but forced to keep their existing account -- at the higher rate -- just to ensure they still had some credit available.


When Reg Z goes into effect, presumably the middle of next year, all that will change. CC companies can still reprice customers to higher rates, and cardmembers will still be able to opt out and close their account if they wish. However, the new rate can only apply to FUTURE balances -- all existing balances must remain at the old rates. Worse still -- well, for us, anyway -- these rules also apply to any "penalty/default" pricing (those are the higher rates that will automatically kick in if you don't pay in a timely manner -- usually 1x60 days, or 2x30 days within any 6 month period).

Obviously, all credit card companies make a lot of money from those two types of rate increases -- income that will be going away when the new regs hit. But as Wintergreen noted, most or all are already losing money. So just to remain afloat, CCs are going to have to find new/alternative sources of income.

Going back to the four sources of income Wintergreen outlined -- interchange rates and the "revenue services" products (the trinkets, etc.) are generally pretty flat. There's only so much we can do to get you to use your card more often or to buy more of the trinkets, though god knows we try our best. That leaves the other two: interest and fees.

Soon the ability to generate additional interest income from reprices will go away, so you can bet that we all will doing so as much as we can, while we still can. It also means that both regular interest rates and fees are likely to increase across the board; you're not going to see any more 0% intro offers, not for a long time. And there are also a number of new fees in the works that can be applied to customers who generate little or no interest.


The irony, of course, is that these new regs were designed to "benefit" the consumer. But in reality, they are likely to negatively impact both consumer and corporation. When the ability to generate additional revenue from riskier customers through repricing goes away, CC companies will be forced to compensate by charging higher rates/fees across the board (i.e., less risky customers will essentially be subsidizing the riskier ones.... sound familiar?). But even that won't compensate fully for the lost income, so the companies -- already hurting -- will be hit just that much harder.

But you can be sure that the politicians who cooked up these new regs will still take all sorts of credit for "protecting" the consumer from us big, bad credit card corporations.

[ghostjmf]

My Citi Mastercard, the one that recently raised my rates, is one I hardly ever use except when buying airline tickets on the web (or other web purchases if I had any other web purchases) using their "virtual card" option, which maps a temporary # to my real CC #; less opportunity for my real # to get "out there" on the internet.

This is the card, always paid in full, which recently raised my rate.

My LL Bean Visa Card, also always paid in full, which used to be run by Bank of America but is now run by Barclay's Bank, did not, I don't think, raise my rate (yet) but pulled another "fastie" I had never before seen:

I had a bunch of car repairs & airline tickets (back when I was buying them over the phone, before hefty rates were applied to that service) on the card. I had not yet, though, reach the maximum limit on the card, which I had set at $2,500.00. I know all stolen-card purchases are absolved after the 1st $50.00, after a lot of hassle, that is, but I wanted a $2,500.00 limit on whomever steals my card anyway, "just because".

At some point, long before the payment for the current month was due, my last-month's expenses, for which a check was already enroute to Barclay's, & my this-month's not-due-yet expenses, when added together, exceeded $2,500.00.

You could argue that this month's expenses weren't due yet, so so what. I certainly could argue that. Barclay's decided that according to them, I was over my limit. You would think, then, that my card would be rejected upon my next use of it. A rude shock to be sure, but that's why I set a limit so low in the 1st place.

Nope. What Barclay's did was put all my purchases through, then tack a $39.00 "you went over your card limit" charge on to my next bill. I complained about this. They took the charge off. They also, at my request, sent me about 60 pages of very tiny print which has embedded in it somewhere their allowance to make this charge, as well as their allowance to add a payment which is not yet received but is not yet late, either, to a payment that is not yet due & get a limit that I set myself that has been, by their reasoning, gone beyond.

[TheCalvinator24]

Perhaps I'm not following the narrative correctly, but it sounds to me like you were absolutely over your limit. Your payment due dates have nothing to do with your credit limit. If you charge more than the difference between your limit and your current unpaid balance (regardless of due date), you are, by definition, over your limit.

[ghostjmf]

TheCalvinator24 says:

Perhaps I'm not following the narrative correctly, but it sounds to me like you were absolutely over your limit. Your payment due dates have nothing to do with your credit limit. If you charge more than the difference between your limit and your current unpaid balance (regardless of due date), you are, by definition, over your limit.

OK: You agree with Barclay's that I'm over my limit (which I had had them set back to $2,500.00 after they initially set it at a much higher level).

Now: Do you agree that Barclay's should have

(a) rejected my purchases until they cashed my check they hadn't cashed yet

or

(b) let me continue to run up charges, then charged me a penalty for it

(which is what they did do, though upon discussion they removed it;
I wonder if that penalty, during the brief 2 days it was on my account, could have
triggered my other card, by an unrelated company, raising my rates)

I thought that limits were there to stop use of the card at the limit, not to be an opportunity for the card company to let whomever is using the card, presumably a crook in most cases, to keep spending, then charge the owner of the card penalty fees.

[TheCalvinator24]

TheCalvinator24 says:

Perhaps I'm not following the narrative correctly, but it sounds to me like you were absolutely over your limit. Your payment due dates have nothing to do with your credit limit. If you charge more than the difference between your limit and your current unpaid balance (regardless of due date), you are, by definition, over your limit.

OK: You agree with Barclay's that I'm over my limit (which I had had them set back to $2,500.00 after they initially set it at a much higher level).

Now: Do you agree that Barclay's should have

(a) rejected my purchases until they cashed my check they hadn't cashed yet

or

(b) let me continue to run up charges, then charged me a penalty for it

(which is what they did do, though upon discussion they removed it;
I wonder if that penalty, during the brief 2 days it was on my account, could have
triggered my other card, by an unrelated company, raising my rates)

I thought that limits were there to stop use of the card at the limit, not to be an opportunity for the card company to let whomever is using the card, presumably a crook in most cases, to keep spending, then charge the owner of the card penalty fees.

The contract allows them to honor the charges. I am sure that most people would rather pay the annoying fee than face the embarrassment of having their card declined in the store/restaurant/other merchant. How would there ever be such a thing as "over limit fees" if the card company didn't honor purchases that put the cardholder over their limit?

I'm not absolving Credit Card companies. They have some rather dubious practices (such as receiving a payment, but not posting it for several days, so that it becomes "late"--I've had that happen with more than one card).

[ghostjmf]

TheCalvinator24 says:

The contract allows them to honor the charges.

I'll bet it does. On page 37 of the 60 page treatise, written in almost-invisible ink.

I am sure that most people would rather pay the annoying fee than face the embarrassment of having their card declined in the store/restaurant/other merchant.

My brother, who was not over any limit in any way, had his card refused while on a date in Michigan. He lives in Ohio, near the Michigan border. When he called the card company, they said "someone was trying to use your card in Michigan!". I have a feeling they may have been at a call center in Bangladesh, but still, a map of the US was only a Google away.

And people with credit cards do tend to travel this great country (& other countries). I used to get regular calls, when one of my cards was run by one of its previous banks, every time I came back from a trip, by an anxious card company warning me my card had been used in Alabama & thereabouts. At least they didn't refuse the card when I used it in Alabama.

How would there ever be such a thing as "over limit fees" if the card company didn't honor purchases that put the cardholder over their limit?

Duh! (followed by sound of me hitting self on forehead)

[ToLiveIsToFly]

I am sure that most people would rather pay the annoying fee than face the embarrassment of having their card declined in the store/restaurant/other merchant.

I've heard that line before, and I call B.S. on it. Maybe I'm an exception, but I'd MUCH rather suffer a little bit of embarrassment and have to give them another card than get socked with a $40 fee.

I realize overlimit fees and overdraft fees are different animals, but the concept is very similar. I carry a very minimal balance on my checking account, just enough for my lunch money for the week. Anything substantial, we use a credit card and pay it off in full every month, or my wife writes the checks (that's where the rest of my paycheck goes).

Over the summer, I filled the gas tank, and accidentally used my debit card instead of my credit card. Didn't notice. And that $50 charge didn't overdraw my account. But the next few $5-10 debits all did. So I got hit with 5 $30-something overdraft charges. BofA waived 3 of the 5 fees when I called them. That was nice of them. My own stupidity. Etc. Then I asked them to switch my account so that, from now on, transactions that would overdraw my account would just be declined. They refused. I bank somewhere else now.

Reminds me of the old saying that if you lend an acquaintance $100 and you never hear from them again, it was money well spent.

[peacock2121]

My card lets me go over my limit, as long as I pay it back down to below my limit before/by the normal due date.

I suspect they did that because I never carry a balance.