=======> A CREDIT CARD YOU WANT TO TOSS! (YET ANOTHER REASON TO HATERIGHTARDS!) <=======

http://money.aol.com/creditdebt/article/business-week/_a/a-credit-card-you-want-to-toss/20080207143309990001

A Credit Card You Want to Toss

By Robert Berner -

Credit-card issuers have drawn fire for jacking up interest rates on

cardholders who aren't behind on payments, but whose credit score has

fallen for another reason. Now, some consumers complain, Bank of

America is hiking rates based on no apparent deterioration in their

credit scores at all.

As banks hit hard times, they're turning up the heat on customers. The

latest is Bank of America who incited customer ire by raising rates

for some cardholders by as much as 28 percent -- and worst of all,

giving no reason.

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 an explanation for the

increase, according to copies of five letters obtained by

BusinessWeek. 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. She

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 Bank of America had notified of sharp rate increases,

even though they were current on their bills, says Emily Davidson, a

Credit.com researcher. Complaint sites My3cents.com and

BankofAmericaBadforAmerica.org say they have also received similar

complaints.

The so-called "opt-out" letters give borrowers the option of no longer

using their card and paying off the balance at the old rate. But they

must write Bank of America by later this month if they plan to do so--

otherwise their rates on existing and new balances automatically rise.

Arbitrary Criteria

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," where

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 congressional hearing spearheaded by Sen. Carl Levin (D-

Mich.), lawmakers 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 reason for the rate

increase 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-based

research firm. "Bank of America is bringing it to a new level."

An Unjustified, For-Profit Move

Analysts also say they are surprised by the magnitude of the rate

raises 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 per year, says he was "shocked" because

his payments had been on time and his credit score hadn't changed in

the last 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 last August. "His rate increase seems unjustified based on his

credit profile," says David Robertson, publisher of The Nilson Report,

a credit-card 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 last six months and was only

now utilizing 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. Bank of America faces another profit sinkhole with

its pending acquisition of troubled Countrywide Financial (CFC).

Portales' Ryan notes that boosting rates on existing credit-card

holders is one of the quickest levers a bank can pull to try to boost

earnings.

Anticipating Charge-Offs

Bank of America hasn't made it easy for consumers to reject the new

rates. The letters require that consumers write Bank of America to

agree to no longer use the card and pay off the existing balance at

the old rate--they can't telephone to do so, nor does Bank of America

provide a form or a return envelope. Moreover, consumers don't have

much time to respond. Cardholders say they got the letters in the

latter half of January: four of the letters obtained by BusinessWeek

require a written response by Feb. 19, while the fifth requires a

response by Feb. 29. If the company doesn't get a response by those

dates, rates automatically rise. A response, of course, assumes

consumers read the letter from Bank of America as they sort junk mail.

"It's a reasonable assumption that most don't," says Karen Gross, a

legal scholar on consumer credit and president of Southern Vermont

College.

Bank of America also benefits from consumers who do write in an

agreement to pay off balances at the old rate and not use the card

again, says Nathan Powell, a credit analyst at New York-based research

firm RiskMetrics Group. The bank, he says, is clearly trying to

protect itself from worsening credit-card charge-offs ahead, something

analysts widely expect in the card industry as the economy

deteriorates. Powell says the bank must have identified a list of

other credit criteria besides FICO that it is using to screen

cardholders and determine it's no longer worth new business if they

don't accept the higher rate. So far, Bank of America's charge-off

rates have risen in line with the credit-card industry, up to 5.08% of

receivables at the end of the fourth quarter from 4.57% a year ago.

"The bank doesn't want to get behind the curve," Powell says.

"Unacceptable" Hikes

Bank of America is trying to get ahead of Amanda Pennington, 29, of

Euless, Texas. She says the bank raised her credit limit three months

ago from $5,000 to $8,000 because of her strong payment history. Then

she got the letter from the bank in mid-January notifying that her

rate would rise from 15.74% to 25.99%. When she called, she says, the

bank told her it was raising her rate because her balance was now too

high, though it was still under the higher new limit the bank had

previously granted. After paying tuition for a community college

course, transferring another balance, and paying for daily expenses,

Pennington's Bank of America debt now stands at $7,500. Bank of

America declined to comment on individual customers.

Adam Levin, CEO of Credit.com and former head of New Jersey's Division

of Consumer Affairs, says he is surprised Bank of America would risk

bad public relations with its rate increases, given the congressional

hearings in December. The bank risks alienating new customers and

existing ones by being so brazen, he says, adding, "Either Bank of

America has more financial troubles than it is willing to admit or it

has a level of institutional arrogance that is unacceptable."