Some of the banks that received bailout money from the federal government are raising credit card interest rates and fees, angering consumer groups and drawing the attention of a congressional oversight panel.
“There has been a spate of increases in credit card rates in the last year,” said Travis Plunkett, legislative director at the Consumer Federation of America.
Bank of America and McLean-based Capital One Financial are among several major credit card issuers that raised interest rates after receiving bailout funds, according to Consumers Union.
“We periodically review credit risk for individual accounts and may reprice individual accounts based on that review,” said Bank of America spokeswoman Betty Riess.
The bank also is raising rates on accounts with an interest rate of 10 percent or less because they are “underpriced relative to current market conditions,” she said, adding that those changes only affect about 10 percent of customer accounts.
“Our costs of providing credit have increased significantly,” Ms. Riess said.
In addition, the bank has increased cash-advance fees from 3 percent to 4 percent, she said.
“We did notify some customers back in February that their rates would be increasing to reflect the current risk environment,” said Pam Girardo, Capital One spokeswoman.
Pam Banks, policy counsel at Consumers Union, said the industry’s rate increases create “a situation where taxpayers remain on the hook, sometimes twice, which is patently unfair.”
“These companies are getting tens of billions in taxpayer bailout money. Yet, even as they accept TARP [Troubled Assets Relief Program] funds, they are hurting our chances at economic recovery.”
Credit card interest rates have risen to a national average of 12.35 percent from 11.38 percent six months ago, according to CreditCards.com.
Caleb Weaver, a spokesman for the congressional oversight panel, said that contrary to a published report, the panel is not conducting a formal probe of the matter.
A financial services industry spokesman said market forces are driving the increases, and with so many credit card issuers to choose from, angry consumers vote with their feet.
“In general, the cost of lending is up because the unemployment rate is 8.5 percent. That risk is built in to the interest rates,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, which represents the 100 largest financial firms in the nation.
“Any connection between fees and TARP money is a non sequitur. TARP was designed to strengthen balance sheets, not to change the competitive landscape,” he said.