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As long as you are carrying a balance on your credit cards, the banks can change the terms, including the rates, and unless you can pay the entire balance off or move it to another card, you could be in for a world of hurt, as B of A customers have discovered.

As banks hit hard times customers are in the firing line once more. Seems like Bank of America are following hot on the heels of Egg Bank, the Citigroup bank in the UK. Like Egg they have written to their customers though not to tell them that they are closing their account but to inform them that they are raising interest rates .

The letters which went out in mid-January informed customers that their rates would more than double rates to as high as 28% without giving an explanation for the increase. To date the Bank is refusing to disclose how many card holders were being affected (rumour has it that 1.5 million letters were sent) or if it had changed its credit standards therefore bumping up some consumer rates. Apparently Bank of America makes a New Year’s resolution each year to scrub out customers with low rates.

One thing is for certain Bank of America hasn’t made it easy to reject the new increases. They require consumers to give written notification of their intentions to leave the Bank. They can’t telephone and forms or returns envelopes are not provided. To rub salt into the wound they don’t even have much time to respond. Cardholders seemed to have been given one of two dates – 19th or 29th February .

These letters have stirred up complaints. Since mid-January Credit.com , a card information site, has received 40 complaints from consumers who have received ‘the letter’ from Bank of America informing them of sharp rate increases even though they had always been on time with their payments. Other complaint sites have received similar information.

However there was some fine print at the end of the letter headed “Important Amendment to Your Credit Card Agreement” which advised that you could call 800 for the reason but consumers who called said that they were unable to get a clear answer. One customer was even told to call back in 9 months time if all payments were on time and ask again for the rate to be decreased.

A spokesperson for the Bank has confirmed that 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 went on to add that the increases are part of a “periodic review that assesses customers’ credit risk. Currently the Bank of America has 40 million US accounts. Ironically there are customers who have not missed any payments and have had multiple BoA accounts in good standing for years..

“Risk based pricing” is a trend which, in recent years, several credit card companies have moved towards. In other words they will increase a regular paying customers interest rate because of a drop in the person’s FICO score, a credit risk system developed by Fair Isaac.. The company declined to disclose the risk metrics used. The scores along with other data such as late payments and outstanding debts are given to creditors by credit reporting bureaux.

In December in a congressional hearing led by Senator Carl Levin credit card lenders were criticized for using such scoring although, by law, they are allowed to alter terms as long as borrowers are informed. Nevertheless JP Morgan Chase and Citigroup announced that they would stop the practice of raising interest rates based solely on FICO scores. However Bank of America go one step further and also use internal criteria that consumers are not party to.

Amongst one of the customers who received a letter informing her that her rate was about to be increased was Amanda Pennington, aged 29, of Euless, Texas. Amanda said that 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.

Bottom line: Perhaps if every Bank of America card holder cancelled their account or even if half (20 million) cancelled perhaps Bank of America would lower rates rather than increase them.

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Steve

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