Credit Cards

Even in the best of times, carrying a balance on your credit card is a risky -- and costly -- proposition. These days, it can be downright foolish, at least if there's a chance you might miss a payment or two. Millions of cardholders have recently received letters from the likes of Citibank, Bank of America Corp., Wells Fargo & Co. and American Express Co. notifying them that their interest rates are going up, in some cases to 30% if a single payment is missed. JPMorgan Chase & Co.

Banks are quietly changing the terms of millions of credit card accounts as they brace for a tough new law that will limit rate hikes. The law would restrict interest rate increases unless a credit card has a variable rate. So at least two major lenders are switching their cards with fixed rates to -- you guessed it -- variable rates. "It's completely unfair," said Linda Sherry, a spokeswoman for Consumer Action. "It's an end run around the intent of the new law."

Leave it to the banks to try to turn passage of credit card reform legislation Tuesday into bad news for many cardholders. Here's the deal: Banks are basically saying that because they're going to have to change some lending practices to comply with the bill, they'll be facing greater risk.

Since the beginning of the year, millions of credit card customers have been hit with higher interest rates -- in many cases from lenders that have received billions of dollars in bailout cash from taxpayers. Sen. Bernie Sanders, a Vermont independent, responded last week with legislation that would impose a 15% cap on rates for all consumer loans, including plastic. And you know what? It just might work.

Van Nuys resident Richard Levinson figured he was getting a pretty sweet deal when JPMorgan Chase & Co. offered to charge an average 4.5% in interest if he'd transfer his outstanding credit card debt to the bank. Levinson, 54, a musician, planned to use the Chase account as a rainy-day fund that would cost relatively little to maintain. "I work in an industry where I can never be sure of my income," he told me.

More than 30 million cardholders had their credit limits reduced between April and October last year, but most of the adjustments were not made for traditional reasons: late payments or accounts going to collections. About 22 million cardholders, or 11% of consumers in the U.S., saw their credit limits lowered despite having no recent risky behavior or actions such as negative records added to their credit reports, according to Fair Isaac Corp, whose FICO score is used by most major credit reporting agencies.

American Express Co. is paying some cardholders $300 each to close accounts so the lender can reduce the risk of defaults as the recession deepens. People who got the offer to "simplify" their finances must pay off their entire credit card balance by April 30, according to New York-based American Express. Enrolling in the program cancels a customer's account and may lead to the forfeiture of reward points or rebates, the company said.

New federal protections for credit card users go into force today, but in advance of the tougher rules, banks have been raising fees and interest rates -- hoping to ensure that one of their historically most lucrative businesses remains that way. Since Congress approved the landmark credit card overhaul legislation last spring, many issuers of plastic have jacked up interest rates, switched accounts from fixed to variable rates, and raised annual...

Consumer borrowing rose again in November as credit card debt shot up by the largest amount in six months. The Federal Reserve reported Tuesday that consumer borrowing climbed at an annual rate of 7.4% in November, far higher than the 1% rise in October. The category that includes credit card debt surged at an annual rate of 11.3%, a six-month high, an indication that shoppers were relying heavily on credit cards to finance purchases since home equity lines of credit became harder to get.

Credit card companies American Express Co. and Capital One Financial Corp. on Wednesday disclosed deepening woes from the growing failure of consumers to repay their debts. American Express, the third-largest U.S. credit card network, said that it would take a fourth-quarter charge of $275 million to cover rising customer defaults and that earnings this quarter would fall below what analysts on average had estimated. Shares hit a 52-week low of $46.