U.S. credit card issuers slammed for raising rates ahead of new law

Rep. Carolyn Maloney, D-N.Y., said the recent rate and fee hikes were “unfair and deceptive and must be stopped.”

Bank executives had warned that the new law would force them to increase rates and fees because it would keep them from properly managing borrowers' risk. The argument is that if banks can't raise rates on riskier customers, they will have to raise rates on all.

Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group, said there are two reasons for the rate increases. First, he said, consumer credit scores, which banks use to determine if they should lend and at what price, have decreased. Second, the cost of providing credit has increased. “Once the new law is in effect, we anticipate a further reduction in the availability of credit and additional increases in the cost of credit,” he said.

Banks have been hit with a record number of charge-offs, or debts they give up on because the borrowers have no way of paying them back. In June, credit card losses hit a record 10.44 percent, according to Fitch Ratings.

Increasing rates and fees is one way they can make up for lost revenue. Since January, of the six major card issuers, Citi has had the largest increase in rates for purchases, according to a report by Credit Suisse.

Samuel Wang, vice president for public affairs at Citi, would not disclose details of the rate increase but said the company adjusts pricing as part of a regular review of accounts. “These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit,” he said.

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