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Credit card rates up

Interest rates for new credit cards are at record levels due to new regulations which limit rate hikes for existing customers, a credit expert told the Chicago Tribune earlier this week.

That’s not the whole story, said Brian Imus of Illinois PIRG. “Banks are also trying to recover the revenue lost after they collapsed the economy and forced consumers to use their cards less,” he said.

“And just as banks protest that the rates are high in order to balance out risk, like addicts who can’t kick the habit, they’re ramping up lending to risky borrowers again,” writes Bryce Colbert at The Swipe, a new blog on credit card issues at New Deal 2.0.

“Their profits come from fees and interest paid by borrowers who can’t stay on top of their bills,” she writes. “They just can’t stay away from fleecing low-income customers.”

Consumers are much better off since passage of the CARD Act last year, Imus said.  “It’s much harder for issuers to impose back-end ‘gotcha’ penalty rates or fees,” and new disclosure requirements make it much easier for consumers to shop around for the best deal.

And the minimum payment warning – which spells out how much interest will cost over time if a cardholder pays only the minimum – has inspired more people to pay down their balances, he said.

The banks knew this would happen, Imus said.  “That’s why it took us over 20 years to enact that critical disclosure.”

In the newest post on The Swipe, Colbert discusses JPMorgan’s highly profitable line of business providing debit cards for food stamps.  It netted the bank over $5 billion last year.

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Category: banks & credit

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