Tuesday, November 17, 2009

What's not in my wallet

I got home last night to find a letter from Sears kindly informing me that the interest rate on my seldom-used Sears card was going up to "the U.S. Prime Rate plus 21.99%." Effectively, that was going to make the interest rate just a bit over 25% and well into usury territory, so much for the "softer side of Sears."

I can take a hint. I cancelled the card shortly thereafter.

This morning CNN.money reports
One in four consumers plan to pay with cash this holiday season, according to a new survey by the National Retail Federation. That's up 9.1% from a year ago.

That's not too surprising considering both credit card companies and consumers have reined in usage during the Great Recession.

Another 42.5% of holiday shoppers plan to use primarily debit or check cards, a 2.5% increase from last year, the survey found.

Credit card usage, meanwhile, is expected to fall by 10.1% to 28.3%.
The story doesn't mention changes in rates but does mention that "credit usage will remain weak until unemployment starts to fall, economists say." Credit usage will also remain weak while interest rates are sky high.

Many other card customers will see notices like this as a result of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, which bans some types of rate increases and "gotcha" fees. Issuers are rushing to raise rates before the provisions kick in this winter (or sooner if Congress gets its way).

It just goes to show that these types of regulations are like squeezing on a balloon. Squish down on one fee and another pops out. At least the new rules have the benefit of simplifying card provisions and making usurious rates easier to spot.


Pino said...


At most the new rules make the fees easier to see. What has effectively happened is that you have been priced out of the benefit of using the Sears card because the cost of poor creditors has been passed on to you.

There is no reason on earth why you should have had to make that choice. No reason, except, that silly silly law.

Dave Ribar said...


Actually it's the benefit of holding but not using the Sears card. And no real cost has been passed on, other than Sears pricing itself out of my demand set.

Higher rates are one option for Sears. Running an actual credit check on customers is another.

The choice was always two-sided. Sears initially made an offer at one price that I accepted. The company subsequently changed the price, and I decided to drop the card.