Banks’ Actions on Credit Cards Undermine Consumer Protections

Low- and middle-income households with credit card debt owe, on average, $9,827 on their cards. If you make the minimum monthly payment -- under many agreements 2 percent of the balance or $10 -- at 10 percent interest, it will take you more than 26 years to pay off the balance, including $6,812 in interest payments.

But what if the rate was raised even higher, or if your rate was tacked to the prime rate (currently 3.25 percent). It could take more than a lifetime to pay off that kind of debt.

In May, Congress adopted the Credit CARD Act to protect consumers from capricious rate hikes. Under the act, banks must give consumers at least 45 days notice before raising their rates. And beginning in February 2010, banks cannot raise rates on existing balances unless a consumer is in default.

Just last week, however, House Financial Services Committee chair Barney Frank accused banks of abusing the “grace period” they were given before all the law’s provisions take effect. Unfortunately for consumers, he’s right.

For example, Wells Fargo announced last week it was raising rates on existing accounts by up to 3 percentage points. Other card issuers, including such large banks as Bank of America and JPMorgan Chase, also have been accused of raising rates on balances prior to the law’s effective date.

Additionally, in June, Bank of America and Chase switched many cardholders from fixed- to variable-rate cards. Variable-rate cardholders are not protected from unexpected rate changes under the new law, because rate changes are permitted as the prime rate moves up and down.

Those most likely to be harmed by higher borrowing costs are consumers who are relying on their credit cards to carry them through the economic downturn. According to Démos, a non-partisan research and advocacy organization, most low- and middle-income households with high debt-stress levels -- the ratio of a family’s credit card debt to their annual income -- use their credit cards to pay for unavoidable expenses, such as medical expenses or to cover household essentials after a job loss, not for discretionary items.

Higher rates lead to longer payoff periods and thousands of extra dollars in interest payments. Let’s take the case of the average low- and middle-income households with $9,827 in credit card debt. If they continue to make the minimum monthly payment on that amount but at 13 percent interest plus prime, rather than our previous example of 10 percent interest, it must pay $19,897 in interest payments over the more than 45 years it will take to clear the balance. And because the prime rate is at historically low levels, this example likely presents a best-case scenario.

Many cardholders have responded to the downturn and the higher borrowing costs by reducing their debt. In July, revolving credit, which is largely credit-card borrowing, declined. For many, however, reducing debt during these tough times is not an option.

Moreover, changes in the availability of credit are also making it more difficult for cardholders to protect themselves from the banks’ actions. In the past, cardholders could demand better terms by threatening to take their business elsewhere. Today, this option is limited, because many banks have tightened credit-card approval standards.

Banks may be putting themselves at risk by their actions as well. If consumers are subjected to usurious rates as the prime rate rises, more will inevitably default on their debt. Banks will find it difficult to make up for these losses by further raising rates on consumers who are already stretched to their limits.

Bank of America vowed last week to stop raising interest rates before the February limits take effect, making the announcement as Rep. Franks’ committee met to consider moving up the effectiveness date of the new legislation. But such a promise offers too little, too late for many consumers who have already been harmed.

It is time for banks to rethink their recent moves and for Congress to do more to protect consumers.

By Jamie Lau

Jamie Lau is a research fellow with the Community Enterprise Clinic at Duke Law School.

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Bankrate: Mortgage Rates Flirt with Record Lows

PRNewswire-FirstCall/ -- Mortgage rates fell sharply in the first week of 2009, with the average 30-year fixed mortgage rate plummeting to 5.33 percent. According to Bankrate.com's weekly national survey, the average 30-year fixed mortgage has an average of 0.39 discount and origination points.

The average 15-year fixed rate mortgage dropped to 4.85 percent, while the average jumbo 30-year fixed rate slumped to 6.91 percent. Adjustable rate mortgages were mixed, with the average 1-year ARM inching higher to 5.98 percent and the average 5/1 ARM pulling back to 5.72 percent.

Mortgage rates fell sharply as the Federal Reserve initiated a program of mortgage bond purchases. The average 30-year fixed mortgage rate is at the third lowest point ever, 5.33 percent. The two prior occasions when rates were lower both occurred in June 2003. Low mortgage rates will be a theme in 2009 as Fed and Treasury policies aim to stabilize the housing market by facilitating refinancing and enticing home buyers into the marketplace.

The sharp decline in mortgage rates since Halloween has sparked a refinancing frenzy. In late October, the average 30-year fixed mortgage rate was 6.77 percent, meaning a $200,000 loan would have carried a monthly payment of $1,299.86. With the average rate having since fallen to 5.33 percent, the monthly payment on a $200,000 loan is now $1,114.34.

SURVEY RESULTS
30-year fixed: 5.33% -- down from 5.64% last week (avg. points: 0.39)
15-year fixed: 4.85% -- down from 5.16% last week (avg. points: 0.38)
5/1 ARM: 5.72% -- down from 5.86% last week (avg. points: 0.47)

Bankrate's national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.

For a full analysis of this week's move in mortgage rates, go to http://www.bankrate.com/mortgagerates

The survey is complemented by Bankrate's weekly forward-looking Rate Trend Index, in which a panel of mortgage experts predicts which way the rates are headed over the next 30 to 45 days. A plurality of panelists, 42 percent, predict rates will continue falling. One in three expect rates to rebound, while the remaining 25 percent believe rates will remain more or less unchanged.

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Bankrate: Mortgage Rates Remain Volatile

PRNewswire-FirstCall/ -- Mortgage rates fell this week, with the average 30-year fixed mortgage rate dropping to 6.2 percent. According to Bankrate.com's weekly national survey, the average 30-year fixed mortgage has an average of 0.4 discount and origination points.

The average 15-year fixed rate mortgage popular for refinancing retreated to 5.95 percent, while the average jumbo 30-year fixed rate was down slightly to 7.61 percent. Adjustable mortgage rates were sharply lower, with the average 1-year ARM down to 5.89 percent and the average 5/1 ARM pulling back to 6.21 percent.

Mortgage rates continue to be volatile, yo-yoing up and down from one day to the next. Heightened economic worries pushed mortgage rates lower versus last week, but the continued twists and turns of the credit crunch are certain to produce more volatility in mortgage rates. Although mortgage rates are pegged to long-term Treasury yields, the spread above risk-free Treasury yields is ever-changing as credit worries prevail. The movement of fixed mortgage rates is not directly influenced by the Federal Reserve's cut to short-term interest rates.

This year has been a wild ride for mortgage rates, with a low in January of 5.57 percent and a high of 6.77 percent in July. At today's rate of 6.20 percent, a $200,000 loan carries a monthly payment of $1,224.94.

SURVEY RESULTS

30-year fixed: 6.20% -- down from 6.41% last week (avg. points: 0.4)
15-year fixed: 5.95% -- down from 6.14% last week (avg. points: 0.44)
5/1 ARM: 6.21% -- down from 6.49% last week (avg. points: 0.36)



Bankrate's national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.

For a full analysis of this week's move in mortgage rates, go to http://www.bankrate.com/mortgagerates

The survey is complemented by Bankrate's weekly forward-looking Rate Trend Index, in which a panel of mortgage experts predicts which way the rates are headed over the next 30 to 45 days. More than half of respondents, 53 percent, expect rates to retreat further in the coming weeks. However, 41 percent predict a rebound in mortgage rates, while just 6 percent forecast that mortgage rates will remain more or less unchanged in the next 30 to 45 days.

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GMAC Insurance Reduces Rates in Georgia

PRNewswire/ -- GMAC Insurance today announced it is reducing its auto insurance rates in Georgia, effective immediately. Many drivers in the Peach State can expect to save an average of around seven percent when purchasing GMAC Insurance coverage from one of more than 400 Georgia-based independent agencies.

With fuel prices surging, these rate decreases will help customers manage their transportation costs. What's more, Georgia customers can potentially achieve even greater savings through discounts for paying a policy in full at the time of purchase rather than through monthly installments, in addition to GMAC Insurance's exclusive GM Retiree and GM Dealership employee discounts.

"We are committed to providing new and existing customers with outstanding service at affordable prices," said Scott Murphy, vice president of product and pricing, GMAC Insurance. "In addition to the new lower prices, we'll continue to offer the same benefits, such as our outstanding SmartServices, including SmartValet, SmartInspect and the SmartParts Promise, and our 24/7 claim reporting service and emergency expense allowance."

The GMAC Insurance rate reduction is a statewide average that will affect individual customers differently. Overall premium changes for individual motorists will vary depending on factors such as the coverages they carry, the discounts for which they qualify, where they live, the kind of vehicle insured, who drives it and how much it is driven.