Capital One’s Unreasonable APR

I received a letter from Capital One today, informing me that they were going to rob me, and there was nothing I could do about it.

Actually, it was that the APR on my credit card account was being raised to 30%! This is with an account that is in good standing. It made me absolutely livid, so I decided to send an email to the CEO of Capital One, as well as my representatives in Congress.

To: Richard D. Fairbank (CEO, Capital One), Senator Barbara Boxer, Senator Dianne Feinstein, Speaker Nancy Pelosi, California Attorney General Jerry Brown.

Dear Esteemed Members of Congress, Mr. Brown, and Mr. Fairbank,

Like many of my fellow citizens, your constituents or your customers, I am currently struggling in this unfortunate economic climate. In August of 2008, I was laid off from an environmental consultancy firm in the San Francisco Bay Area, where I worked as a staff geologist since I had graduated college. Fortunately, unemployment insurance came to my rescue, and despite the meager income I now received each month, I’ve been able to barely survive living in one of the most expensive areas of the United States.

Also, like many of my fellow Americans, and people from my generation specifically, I was ruthlessly preyed upon by all sorts of credit card companies while I was enrolled in college. In August of 2001, I opened my very first credit card account. It was with Capital One. Despite racking up huge debts with my Capital One credit card (and various other credit cards) throughout my college education, I have *never* once been delinquent or tardy with a monthly payment. Unfortunately, due to my lack of financial planning or poor judgement in purchasing decisions, this is a debt that I am still left with paying today.

Despite my strong and positive credit record, I was completely surprised today when I received a letter from Capital One informing me that the terms and conditions of my account have changed. The letter stated that the APR on my credit card account was being increased to 29.4%! That means that for every $100 dollars that I owe, Capital One is charging me nearly $30 in finance charges. For someone who has thousands of dollars of credit card debt and is relying on unemployment insurance payments to survive, this is a huge blow, as I can barely afford to pay the monthly minimums as it is. And now I will be struggling to pay even more each month.

This raises a few questions in my mind. How can this outrageous practice from credit card companies be legal? They are completely robbing their customers without regard to their past credit history. I have a flawless payment history, so why am I being penalized for the bad decisions that Capital One executives made on behalf on their company? In essence, I am actually being penalized for their bad decisions *twice* since Capital One is participating in the Treasury Capital Purchase Program (TARP) and some of my taxpayer dollars are already being used to help bail them out. This practice is outrageous and completely wrong.

To be fair, the notice from Capital One says that if I do not agree to these credit terms, I can cancel my account. However, in canceling my account, my credit score will take a hit and I will lose the ability to use this card for unforeseen emergencies that might arise while I am looking for a job.

What can members of Congress, the Department of Justice, or our states’ Attorney General’s office do to protect American citizens and consumers from this type of greedy thievery? What can I do as a citizen and customer of these companies to help implement some sort of change or warn others about these outrageous and unreasonable conditions?

I look forward to hearing your comments and thoughts on the matter.

Kind regards from a very concerned and troubled citizen,

Dave Schumaker
San Francisco, CA

cc: Richard D. Fairbank (CEO, Capital One), Senator Barbara Boxer, Senator Dianne Feinstein, Jerry Brown (CA Attorney General)

It’s nice to know that Capital One values me so much as a customer, that they want me, personally, to help bail them out. Downright flattering.

Update (April 5, 2009): Nancy Pelosi and Dianne Feinstein responded to my letter!

First, the letter from Nancy Pelosi:

Dear David:

Thank you for contacting me to express your views on credit card reform. I appreciate hearing from you on this important issue.

Increasing credit card fees and interest rates are contributing to escalating debt burdens for tens of millions of Americans. As the use of credit cards continue to increase, we must ensure that consumers are adequately protected and credit card companies follow fair lending practices.

Representative Carolyn Maloney (D-NY) introduced H.R. 627, the Credit Cardholders’ Bill of Rights Act of 2009, on January 22, 2009. The bill was referred to the House Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit and the Subcommittee held a hearing on the bill on March 19, 2009. The full Financial Services Committee is scheduled to vote on the bill on April 1st.

S. 235, the companion Senate bill to H. 627, was introduced by Senator Charles Schumer (D-NY) on January 14, 2009 and was referred to the Senate Committee on Banking, Housing, and Urban Affairs and no further action has been taken.

H. 627 and S. 235 would amend the Truth in Lending Act to reform practices across the credit card industry. The bills are a comprehensive reform package that would protect cardholders against arbitrary interest rate increases, restrict unfair fees, and shield cardholders from misleading terms. To enhance competition in the industry, however, they do not set fees or price controls in the credit card market.

S. 392, the Credit Card Reform Act of 2009, introduced by Senator Robert Menendez (D-NJ) on February 6, 2009 would curb sudden changes in credit card agreements, restrict issuance of cards to consumers who don’t have the ability to make payments and would ban deceptive practices. The bill was referred to the Senate Committee on Banking, Housing and Urban Affairs and no further action has been taken.

S. 414, the Credit Card Accountability Responsibility and Disclosure Act of 2009, introduced by Senator Christopher Dodd (D-CT) on February 11, 2009, would require advance notice of any increase in the annual percentage rate of interest, ban abusive credit practices, enhance consumer disclosures and ban issuing credit cards to underage consumers unless they have submitted a written application meeting specified requirements. The bill was referred to the Senate Committee on Banking, Housing and Urban Affairs and no further action has been taken.

The debt crisis inundating so many Americans is partly the result of an industry with few regulations and little oversight. I look forward to working with President Obama to help protect the families and businesses facing unfair practices from the credit card industry. Please be assured that I will keep your comments in mind should credit card reform legislation come before the House of Representatives.

Thank you again for contacting me on this important issue. I hope you will continue to communicate with me on matters of concern to you. For more information on this or other issues affecting our city and our nation, please visit my website at www.house.gov/pelosi or sign up to receive e-mail updates at www.house.gov/pelosi/IMA/subscribe.html.

Sincerely,

Nancy Pelosi
Member of Congress

And the letter from Dianne Feinstein:

Dear Mr. Schumaker:

Thank you for contacting me to express your concerns about credit card interest rates. I appreciate the time you took to write and apologize for the delay in my response.

Like you, I am concerned that many credit card holders face serious obstacles in paying their credit card bills from month-to-month. I understand that consumers often sign up for credit cards with low introductory annual percentage rates (APR) that quickly rise to more than 30 percent. During this serious economic crisis, undue interest rate increases can compound an already challenging situation.

You may be interested to know that I have introduced the “Credit Card Minimum Payment Notification Act” (S. 131), which would require creditors to tell card holders how long it will take and how much they will have to pay if they only make the minimum payment on their balance each month. If a consumer is subject to a variable rate, the bill would also require the credit card company to provide contact information for an accredited counseling service. I believe consumers have a right to know the long-term impacts of making minimum payments, and I hope the Senate will move quickly to pass this important legislation.

Several comprehensive credit card reform bills have been introduced in the House and Senate during the 111th Congress. Senator Christopher J. Dodd has introduced the “Credit Card Accountability Responsibility and Disclosure Act of 2009” (S. 414). This legislation would prevent credit card companies from increasing interest rates on customers for reasons unrelated to their existing account. Additionally, it would require credit card companies to notify customers 45 days in advance of an interest rate increase and would allow the customer to cancel the card prior to the increase.

On February 12, 2009, Senator Dodd chaired a hearing on improving consumer credit card protections in the Senate Committee on Banking, Housing, and Urban Affairs. As the Chairman of this Committee, Senator Dodd called for swift action to assist struggling credit card holders and improve transparency and oversight of the industry. Please know that I will work with Senator Dodd and my other Senate colleagues to address the issue of unfair credit card interest rates and I will certainly keep your thoughts in mind during this process.

Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841. Best regards.

Sincerely yours,

Dianne Feinstein
United States Senator