Mickey Kaus, in a recent post, made reference to his "recent, not uncommon, experience with rising credit card rates." Sure enough, in my mail came a letter from a credit card company -- actually, a large British bank -- informing me that the new penalty annual percentage rate on my card will be "the Prime Rate plus a margin of up to 26.99%" Said the letter, "Based on the Prime Rate as of August 1, 2009 the current Penalty APR would be up to 30.24% corresponding to a Daily Periodic Rate ("DPR") of .0828%"
That's a pretty hefty rate at a time when inflation is minimal. Free-market types generally support the ability of a bank and a lender to enter into any contract that they both agree to. But it is interesting that at a moment when the administration, the Federal Reserve, and Congressional committees that oversee banks have a stated policy of trying to protect consumers and loosen up the flow of credit in the economy, banks are jacking up rates. Maybe they are trying to make all the money they possibly can now before Congress and the administration create a new regulatory agency to protect consumers? Maybe they are trying to make money to pay back what they were forced to take from the government (or needed to take from the government)? Maybe they are trying to make money now to meet the stricter capital requirements that are on the way?
It would seem to create an opportunity for a new-entrant credit card company or bank that charged lower rates. Maybe that will happen, or maybe I'm missing something. In any case, it's another good reason to pay your credit card balance off in full every month.