Rate hike angers Capital One customers

March 2, 2009 7:21:50 PM PST
Yet another credit card company is raising interest rates and fees on millions of its customers. First it was Citibank and Chase. Now it's Capital One.

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You've probably heard the Capital One slogan, "What's in your wallet?" The answer for millions of Capital One customers is higher interest rates. Many of them have contacted 7 On Your Side wondering, "Why me?" and "Why now?"

For the past 10 years, Benita and John Malone never missed a credit card payment and never went over their limit. So they were shocked when out of the blue they received a notice from Capital One saying their interest rate will nearly double starting in April.

"It was going from 12.9 to 22.9," said Benita. "It's a huge leap. It's unacceptable."

"She was about to pass out as she was reading the letters," said John.

Benita immediately called Capital One, but the fact they are longtime customers with a perfect payment history didn't matter one bit.

"They stated that because of the political climate of the country and the economic crisis -- that is what they shared [about] why the interest rate was being raised," explained Benita.

The Malones are not the only ones. Capital One customers flooded 7 On Your Side complaining their rates suddenly shot up, too. It even hit those with high credit scores and zero balances.

"It's going to drastically affect us because our bills keep going up, but our salary doesn't," said Benita.

The Malones say their minimum payments will be twice as high to about $360 a month -- and that hits hard.

"We're to the bare bones," she said. "I mean we cook every night almost at home. We rarely eat out."

"We don't live extravagantly," said John. "I don't wear the Nikes and expensive clothing."

Capital One tells 7 On Your Side, "We are notifying some customers that we'll be increasing their interest rates to reflect the current risk environment. Because the credit and lending environments continue to be challenging, the account changes are necessary in order for us to appropriately account for the increased risk of lending to consumers under these economic conditions."

Economics professor John Shoven at Stanford University says it is no wonder. Credit card defaults are on the rise and Capital One's stock is tanking.

A graph by Marketwatch.com shows Capital One's sharp decline from $65 a share in September to just $9 this month.

"So they've lost 85 percent of their value," said Shoven. "So the credit card companies are saying just to survive, we've got to raise interest rates."

But consumers like John and Benita say they should not have to shoulder a bank rescue.

"I don't have any extra money to spend," said John. "I don't know about the rest of the world, but I don't."

"They've made a fortune selling credit cards," said Joe Ridout of Consumer Action. "Just because they had one bad year, big deal."

Ridout says banks are raising rates, even for model customers. However, starting in mid-2010, federal rules will change and rate hikes will be harden to impose.

"They won't be able to triple your interest rate or double your interest rate, and shockingly enough, that is something that is permitted today," said Ridout. "They can raise your interest rate for no reason."

Capital One is offering customers an option to close their accounts and pay off their balances at their current lower rates.

But for John and Benita, it is not so easy to give up a credit card.

"Our main card that we used was Capital One," said Benita.

"It hurts," said John. "We're struggling just to make those ends meet."

"So we don't know what we're going to do right now," said Benita. "We don't have a game plan."

They are harder to come by, but there are some low interest cards out there. Bankrate.com lists a card from First Command Bank at a variable rate of 4.25 percent and one from Iberia Bank as low as 6.25 percent.

Indexcreditcards.com says Simmons First National Bank has a fixed rate card at 7.25 percent and Pulaski Bank has one at 8 percent.

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