I have been using an airlines credit card for the last 3 years or so, once going out to The Ranch and to see my parents became a thing. One earns points for money spent and gets a bolus of points on the anniversary. It was one we paid a fee for but, at that time, yielded significant benefits.
The notice that came in the e-mail had the innocuous title of "Changes to your XXXX account".
The purpose of the e-mail was to notify card holders at starting on 26 March, a new penalty for failing to make a payment - the "Penalty APR" was being put in place. In short, in the event that a payment is missed, an interest rate of up to 29.99% (Prime plus 26.99%) will be levied against the account. As an alternative, they are setting up a "pay over time" option for select customers and select purchases (conveniently called the "MY (Bank Name) Pay Over Time" plan.
You read that right. 29.99%
Technically, you do have the right to protest the fee - however if you do, the bank will close the account and no new purchases will be allowed to be made. How long will the Penalty APR be in place, even if you do make the payments? It could be up to forever, or as long as you hold the card.
They note that "As a valued customer, we encourage you to continue to make your payments by the due date to avoid penalties".
We have paid off our monthly balances for years (the points earned from credit cards have paid for any number of flights), so I had no idea what the current going rate is. Turns out it is between 21.24% and 23.24% for purchases (that do not, apparently, miss payments).
I can only imagine the bank - I presume all the others are doing the same thing - is trying to get in front of what they see as a major failure of repayment coming in the not too distant future. '
Which is actually pretty telling about what industry - not the people that do not have to bear the brunt of bad decisions - thinks the near future will be like.
Like you, I always pay mine off every month so never know the penalty fee. My parents stressed to me that I should NEVER carry a balance on a credit card and I'm stressing the same thing with my eldest. Hopefully that lesson sticks with her as it has stuck with me.
ReplyDeleteEd, we have done the same with our children as well. My parents and grandparents did the same.
DeleteWe went through a phase early in our marriage where this was not the case, and it left pretty intense memories.
At least they gave you a heads up. I gave up my credit card years ago for something similar, but without warning. I had always paid it in full every month and one month forgot a $7 purchase and missed the payment. Of course there was a fine (something like $20) which I paid without complaint because it was my mistake. The next month they not only raised the interest rate (which didn't concern me) but they tacked on another fee because of the one missed payment. That was the end of my credit card use.
ReplyDeleteI'm guessing most people have figured out that the minimum monthly payment is less than the interest, but it seems that the credit card habit is hard to break, especially nowadays. Between credit card perks and personal financial struggles, most of us are caught between a rock and a hard place.
Leigh, that would be my fear as well - not a decided decision to not pay but an accidental miss. The language made it sound very authoritarian: If you protest the fee you can, but we will disable you from using it.
DeleteCurrently our net benefit from the credit card in terms of points has been helpful, but I wonder if (as the economy gets worse) those benefits will be reduced, which will reduce the attractiveness of credit cards, etc. etc.
There are no situations where one needs a credit card. The whole industry is a scam. If you can't fathom the interest on these things, you belong in the wood chipper. Save and budget for what you need, any left over is for what you want. I worked with people that fell for every single offer on the planet from Bank cards to retail cards. Who needs a Victoria secret credit card? Or a Radio Shack card? One woman I knew had 22 cards from various organizations. Why?
ReplyDelete...Try renting a car without a credit card... SOME rental companies will accept a bank DEBIT CARD, but many won't.
DeleteThe same goes for hotels.
Other than that, I agree with you. I no longer have a credit card. I did have one IN THE SAFE for EMERGENCY ONLY, as in "Mom's dying. Get here quick," with me needing to rent a car at the destination end. I got a letter last year saying that if I didn't use the card within the next 90 days, my account would be closed. ...My account is now closed... ...Sorry Mom...
Certainly in the UK I have found it true that it is almost impossible to rent a car or van without a credit card, debit cards are not accepted. I've also found the same true of some on-line businesses, they require a credit card and will not accept a debit card.
DeleteTo Pete and Will's point, there are a number of businesses which need a credit card, even if you end up paying by another means. Certainly that does not apply if you do not need to rent a car or a hotel room - but if you do, then you will need one. It also gives one an insulation layer for theft instead of having the money directly pulled from your bank account.
DeleteA similar thing happened to me back in '08. I had a card with a 9% FIXED INTEREST RATE. Out of nowhere, the bank, Bank Of Anti-America, sent me a notice that my interest rate was going up to 18%. Remember, this was a FIXED INTEREST RATE. ...They just went ahead and did it! I called asked why they raised my FIXED INTEREST RATE, and was told that the rate had to be raised because too many people were defaulting on their credit card payments. In other words, I was being PENALIZED for SOMEONE ELSE'S misdeeds... 'Sound familiar? I also asked how they could raise a FIXED INTEREST RATE, and was told "Because, by law, we can." I told the plebe on the phone that I was going to pay off my balance and close my account; one that had been open for over twenty years. She said "Do what you want, Mr. Forester." I promptly paid off the balance, around $3K, and never looked back. I haven't used a credit card in ten years. For the record, in the entire twenty years I had that card, I missed ONE payment due to the statement having never reached my mailbox one month. The bank even forgave the late fee because I had been a customer for so long, and had such a good payment record.
ReplyDeleteFolks, I don't care WHAT kind of "points" you're "earning" by using a credit card. IT'S NOT WORTH THE DOWNSIDE! CUT THEM UP. BURN THEM. Do WHATEVER IT TAKES to cut the cord between YOU and DEBT!!!
The logic behind this has always escaped me. People can't afford the payments so raise their rates and make them pay more? Why does that not make sense?
DeleteWhile I think credit cards aren't for everyone and those that have them should be diligent about paying them off, the main reason I have mine set for automatic payments, I do think there is a tremendous upside to them. My Citicard Doublecash card, no annual fee, gives me 2% back on everything I purchase. I get it in the form of cold hard cash too so I'm not forced to trade it for gift certificates or perks that I'm not interested in. 2% of my annual spending, year after year, is a tremendous amount of money and lost opportunity for those who forego their use.
DeleteThen there is just a huge amount of utility by having one. I can buy things online for example, shipped directly to my door for free, and save tremendous amounts of fuel from having to drive around and pay with cash. Many things only take credit cards these days so by not having one, you can be limited.
Leigh, there is bank logic, and real logic. Banks view people as resources to be harvest, little more - contrary to their "We care" message.
DeleteEd, we have derived direct benefits as well. Points from one card have covered trips to The Ranch; points from The Ravishing Mrs. TB's card have paid for her travel to foreign lands. And if one plans carefully, one can gather double or triple points for things like hotels, car rentals, etc.
DeleteThe key is to managing them wisely - and paying them off at the end of the month.
Feds raise interest rates, everyone follows suit.
ReplyDeleteAnd what Peteforester said
Same happens with insurance..
You all be safe and God bless.
Insurance is just as bad Linda. In more and more states now, insurance companies are canceling policies. And rates go up every year with no equivalent of "rent control" on them going up.
DeleteI retired in 2009. Up until then I carried airline and hotel cards. I received point on all of them. Few years after hubby and I decided to take a trip to Italy. One of the cards paid for our round trip in business class and we stayed at a Raddison in Rome. We got home without a lot of points left but it was grand. I never did use up all the miles I had accumulated for 19 years. Never ever used a sponsored credit card. I'm a cash only person.
ReplyDeleteWe have also benefited from points on credit cards - if we are going to spend the money anyway, why not realize the extra benefit? But we could pay cash if we had to.
DeleteWe dumped the credit card "thing" back in '08 when the world imploded. Our credit rating is prolly 000.
ReplyDeleteHeh heh. When I was out visiting my in-laws, my nephews got into a discussion about their credit rating. I realized I had no idea what mine was as it had not been an issue since 2013, when we purchased our current house.
DeleteStill have no idea what it is. It will only matter if we have to buy another home or finance a car, both which seem unlikely at this point.
ReplyDeleteWe live in a tiny town with only a grocery store and restaurant. Amazon does a bang up business here and the nearest Costco is 80 miles in another state. Home delivery from these businesses is a blessing, especially in the snowy winter. A credit card is a must, but since we pay our balance every month, their fees and interest rates don't matter to us.
Tewshooz - For things like that sort of delivery, credit cards are pretty much a need (although I believe that Amazon will now let you bill a bank account). That said, I would rather use a credit card instead of a bank account due to the potential of fraud. A credit card can notify you and put a hold on the card; the money is just gone from the bank account.
DeleteTwo things: first, your assumption about what the bank is "thinking" with this change might have some validity, but I doubt it. If it is valid, I assure you it is only one component. I've been in the industry for a long time and like any business, there are constant product analyses conducted for a host of reasons, including regulatory, competitive and profit. Although some, especially some in government, would argue the point of banks being for-profit businesses, they are.
ReplyDeleteAs to credit cards, yes folks can get in big trouble with them and their providers (banks) profit from the interest paid. Again, it's a business model. There are some folks who should not use them, but if you pay off the balance every month, they provide a convenience that's hard to beat and like you, I greatly appreciate the airline miles and other perks.
That is fair, Bob - I often assume business are pre-emptively acting in view of the future economy (happens in my business all the time, due to funding) but there are other factors driving things as well to your point. And while it can be extreme, the other potential path - government direct lending institutions - is not an attractive thought.
DeleteThe real problem lies with money management, something we are generally poor about in our education system (at least it seems to me). Yes, there are predatory lenders and banks will give credit cards to almost anyone initially, but we as a whole believe we are entitled to everything "right now" instead of earlier generations, which often viewed a standard of living increase to be paid for, not financed.