I checked my postal mail yesterday only to find a letter from Capital One. I figured it could be a statement, a new offer or some kind of message promising me that everything will be okay encouraging me to charge more on my credit card in relation to the proposed economy stimulus package. What’s in your wallet? A card that I won’t use.
I opened it and saw an interesting blue brochure. Then in moments I realized that the advice/threats that Suze Orman advised became true. Capital One has criminally raised my rate up from 11.5% APR to 29.4% APR! I say criminal, because if a regulated utility company did this, they would be sanctioned civilly and criminally. The difference in those rates is an astounding 255%!
I understand Capital One is a for-profit business with many shareholders eager to generate revenue despite a complete lack of consumer confidence in the last quarter. However, credit card company’s actions threaten the trust of customers which eventually cascade into reduced consumer spending, borrowing and even shareholder confidence. I also consider the fact that there are some people out there who may have high balances, past-due payments or possibly laid off from their job.
Capital One APR Increase Notification
Understandably, lenders are in a superior position to raise rates, adjust credit limits and manage their customer’s financial habits if they can’t meet their obligations. On the other hand, I do question the intended logic or gamble of the result in derailing someone’s APR.
I take great offense to the fact that I’ve made my payments on-time and currently hold a $0 balance on that account. The only indicator that I can tell I’ve done that was wrong, was to place a $300 charge for new tires on there and paid the balance in less than 14 days.
Capital One's APR increase "Opt-out" statement
For context, yes I held a large debt to Capital One a year ago and had paid an obscene amount in the name of finance charges and penalties to them, but I accept that. In light of my wiser, more conservative financial decisions, Capital One had voluntarily lowered my rate from ~24% to 11.5% because it was evident I lowered my financial risk to them. And to this day, I carry a $0 balance on the card with a four-digit credit line.
What should I do in this circumstance? My only options are to opt-out by closing my account or agree to close my card on the expiration date. Of course, I could retain the card, but accept the exorbitant APR rate from them. However, this decision is less pragmatic than you may think. This is where I need your help to decide where I go from here…
Damned if I do, Damned if I don’t
Like many Americans who have had themselves up to their knees in debt, I’m interested in maintaining my clean credit history. (It’s important for later financial decisions, like if I want to get a decent rate on a house and not looking to get it foreclosed on, for example.) I can only imagine the devastation this could cause for someone if they held a balance on their card.
This change from a credit card company yields me two options — both of which would result in a significant hit on my credit score: a major APR increase or a closed revolving credit account.
What will yield a better outcome? I don’t need that card, but I have sense of security knowing that I could use it in the event of emergencies or sudden financial changes.
Final thoughts for Capital One and other credit card companies out there:
It is you who inspire consumer confidence, yet take it so quickly. It is you who promote poor spending habits. It is you who facilitate so much emotional attachment to credit cards. It is you who can help provide us food on the table when our checking accounts don’t. It is you who are the safety net in consumer spending, consumer confidence, investor confidence and shareholder confidence.
While on one side of the coin (no pun intended), credit cards help people establish financial equity and train them to be great financial borrowers; on the other side, it’s the faceless, opaque, cold corporate credit card companies whose main objective is to exploit the consumer. I don’t know what side of the coin they want to be on by making these decisions, but I believe it’s the latter.
I can tell you, Capital One, I work hard, every day like many of your card holders. In fact, I haven’t even posted here very much lately because of my occupational obligations (despite blogging being in my trade) to make good on my commitments. Please don’t do this. It only alienates me and the thousands, possibly millions of card holders, small/medium/enterprise sized business that depend on consumers expensing their life on your card.
The effects of criminally increasing someone’s APR by more than 255% is felt by everyone.
First, the shareholders. When they read news like this that Capital One is raising rates like this for no reason, it lend concern to your financial health or confidence. As such, shareholders might be more willing to invest in blue-chip funds than consumer financial organizations.You know the effects when investors lose confidence, look at the Dow.
Second, the businesses. Commerce now is in need for consumers to spend wisely and confidently. When rates are obscenely increased, people tend lock down their finances and keep spending to a minimum. When businesses hurt, we all feel the effects in the form of inflation, lost jobs and a cycle of lost confidence. You know the effects of this, look at the number of businesses operating in the red, even after Black Friday, Cyber Monday and Mobile Tuesday. The effects of downsizing small business are devastated communities, lost local tax revenue and an increase in animosity towards companies like Capital One.
And finally, consumers. They are up against a lot of obstacles besides deciding if they want a 46″ or a 52″ HDTV, or what color iPhones to purchase. They have to decide on a monthly basis how they will spend what could be their last paycheck from work, what creditor will be paid and who will be fed. To the people, the value of the dollar increased and as such so does every percent on their credit card’s APR. While the government is stepping in and providing some “stimulus” on the carcass of the economy, I can tell you that the $400 is going to pay debts, not spend it on goods.
Corporate (Ir)responsibility. There is a reasonable expectation as corporate citizens to do good by people. Hell, Google could charge one penny per search and make billions a week — but that would be evil by many interpretations. Good corporate consumer advocacy means you ought to empathize with your card holders, discuss new terms and not cornering people into the logic of “do it or leave.” Decisions like this are very damaging to investors, businesses, people and ultimately yourselves.
Capital One, you shame yourselves, your investors, your card holders and your industry when you make poor decisions. For that, I don’t know what type of response that could salvage your reputation and bitter taste in my mouth.
I’m still unsure on which will have a worse impact on my credit score – high APR or closing the card. In any case, I entertain the upcoming series of communications from Capital One that will follow after an uproar from consumers and legislators.
If you found my thoughts on this interesting or useful, please feel free to share it with your friends and family. All I can recommend now is that you pay down your Capital One cards immediately before this happens to yo. (Note: All credit card companies are doing this and everyone is vulnerable to these changes, I point out Capital One because of their assinine advertising that is on television.)