So first things first. I think we might have to give a thumb up to the Fed. Yesterday’s news that the sub-prime reset rates for mortgages at risk did not jump as high as was expected. In other words, people expecting their mortgage payments to leap out of payment reach were pleasantly surprised at a little they had changed because the Fed had lowered prime. Breathing room is what they call it.
Strangely enough, on the very same day that I read that news, my Citibank credit card sent me a letter explaining that they were forthwith increasing my variable rate for purchases to U.S. Prime plus 14.9% but with a minimum set at 19.99%. At BCSAlliance.com, I found this note:
When the prime rate decreased during the period February 2001 until June 2004, most credit card interest rates did not decrease accordingly. In fact, most credit card issuers raised their interest rates steadily during that period. How did they do that? When the prime lending rate fell, they simply raised their margin rates to compensate for the decreasing prime rate so they would not have to lower the interest rate on customers’ credit cards. You can find out how ethical your credit card company is by getting out your old monthly statements and seeing if your interest rate dropped as the prime rate fell steadily during the period February 2001 to June 2004. (Of course, to do this your credit card interest rate must be tied to the prime lending rate.) If you have a variable rate card, notice how quickly your credit card company raised your interest rate when the prime rate increased. Did they lower your interest rate when the prime rate fell?
I think just about everyone would agree that the credit card industry lacks in transparency. Even as congress struggles to regulate it, it is also clear that the question about what reasons apply to explain the lenders margin rates are still missing. As I expected, information about this problem is scarce and indicates the slant of privacy is definitely towards the credit card companies.
Meanwhile, the world turns. Have a nice Sunday.