Bank of America blindsiding cardholders?

Bank of America blindsiding cardholders?
By Business Week

The nation's biggest bank is doubling interest rates for some of its most responsible credit card customers.

Credit card issuers have drawn fire for jacking up interest rates on cardholders who aren't behind on payments but whose credit scores have fallen for other reasons.

Now, some consumers complain, Bank of America is increasing rates based on no apparent deterioration in their credit scores at all.

The major credit card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving explanations for the increases, according to copies of five letters obtained by Business Week.

Fine print at the end of the letter -- headed "Important Amendment to Your Credit Card Agreement" –- advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer.

"No one could give me an explanation," says Eric Fresch, a Huron, Ohio, engineer who is on time with his Bank of America card payments and knows of no decline in the status of his overall credit.

Bank of America spokeswoman Betty Riess confirms some bank cardholders could be receiving rate increases for reasons other than declines in credit scores, such as running higher balances with their Bank of America cards or with other creditors. She says the increases are part of a "periodic review" that assesses customers' credit risk.

Reiss declined to say if the Charlotte, N.C., bank had changed its credit standards, thereby bumping some consumers' rates, or how many cardholders were being affected by the review. Bank of America has 40 million U.S. credit card accounts.
Buzz about the letters is building on the Internet. Since mid-January, Credit.com, a credit card information site, has received 40 complaints from consumers whom Bank of America notified of sharp rate increases, even though they were current on their bills, says Emily Davidson, a Credit.com researcher. Complaint sites My3cents and Bank of America: Bad for America say they have received similar complaints.
The so-called opt-out letters give borrowers the option of no longer using their cards and paying off their balances at the old rates. But they must write Bank of America by later this month if they plan to do so. If they don't, their rates on existing and new balances automatically will rise.

What's striking is how arbitrary the Bank of America rate increases appear, credit industry experts say.

In recent years, many card companies have turned to a practice called "risk-based pricing," in which they will raise a regular paying consumer's rate because of a decline in the person's FICO score.

FICO is a credit-risk score developed by Fair Isaac that includes a number of risk metrics the Minneapolis Company doesn't disclose.
Credit reporting bureaus supply creditors with FICO scores along with other data, such as late payments and debts owed.

In a December hearing spearheaded by Sen. Carl Levin, D-Mich., senators slammed big card companies for using such pricing with customers who pay on time. By law, credit card lenders can change terms as long as they notify borrowers. Even so, JPMorgan Chase and Citigroup announced ahead of Levin's hearing that they would stop the practice of raising card rates based solely on FICO scores.

But Bank of America appears to be taking an even more aggressive stance because, beyond credit scores, it is using internal criteria that aren't available to consumers. That makes the reasons for the rate increases even more opaque.
"Congress has faulted credit card companies for lack of transparency in raising rates," says William Ryan, a financial industry analyst at Portales Partners, a New York research firm. "Bank of America is bringing it to a new level."

Analysts also say they are surprised by the magnitude of the rate increases Bank of America is imposing on affected cardholders.

Michael Jordan, 25, a software developer who lives in Higganum, Conn., says he received a letter from Bank of America in late January advising him that his card rate would rise from 9.99% to 24.99%. The software developer, who earns $80,000 a year, says he was "shocked" because his payments had been on time and his credit scores hadn't changed in the past year.

In fact, Jordan says, he has only $4,500 in overall outstanding credit card debt on two cards and that, on the Bank of America card in question, he had paid down his balance to $3,000 from $3,700 in August.

"His rate increase seems unjustified based on his credit profile," says David Robertson, the publisher of The Nilson Report, a credit industry trade publication.

When Jordan called Bank of America about the higher rate, he says, the bank representative couldn't explain why his rate was going up. On a second call, he adds, the individual told him the reason for the increase was that he hadn't been paying down his balance fast enough, though he had lowered it by 19% in the past six months and was now utilizing only 54% of his $5,500 credit limit.

Riess, the Bank of America spokeswoman, declined to discuss individual rate increases or to list all the criteria the bank was using as reasons to raise rates on existing cardholders. Analysts say the bank's move is obviously aimed at shoring up profits. On Jan. 22, Bank of America reported a 95% decrease in fourth-quarter earnings due mostly to increases in loan-loss reserves for consumer credit, including rising card charge-offs and write-downs in mortgage-related securities.