ACC12: Chapter 14 Article

http://www.usatoday.com/money/industries/banking/2008-11-09-bank-credit-card-interest-rates_N.htm

Summary

“Why banks are boosting credit card interest rates and fees,” is an article written by Kathy Chu and Byron Acohido from USA TODAY. It starts off with a small story about a guy name Tommy Newsom. Tommy Newson gets his credit card bill and is shocked that interest rate has doubled. He asked a customer rep and was informed that the law allowed his bank to double the interest rate. Tommy states, “The bank is just looking for a reason to maximize profits.” It isn’t just Tommy’s bank that has increased the interest rates and penalty fees on credit cards. Many banks are increasing their interest rate and penalty fees for credit cards to increase revenue because of mortgage-related losses in the economy. Also, “selling off credit card debts has given banks a powerful incentive to raise card fees and penalties.” Securitization is another reason why banks have increased interest rates, but banks have denied the relationship between securitization and increased penalties. Securitization has caused some credit card companies to take riskier loans.

Connection

The connection I made between chapter 14 in the accounting textbook and the article, “Why banks are boosting credit card interest rates and fees” is credit card charges. The bank doesn’t provide free service for credit cards. They charge fees and interest to earn revenue from credit cards. The bank charges transaction fees, annual fees, interest on advances of cash given to them and overdue balances on the credit cards. The main fee that connects the textbook and the article is interest on overdue balances. The article is mainly about the increase in credit card interest rates. When the bank increases the interest on credit cards, they earn more money.

Reflection

I agree that banks should increase the interest on credit cards because of their losses in mortgages, but I don't think nearly doubling it is reasonable. At a time when the household budgets are bad, it’s giving consumers a harder time to pay their bills on time. I think families with tight budgets shouldn't be using credit cards. The interest is going to cause them to pay a lot more and the debt is just going to increase if not paid on time. If possible, I think consumers that are on a tight budget should just use cash. Credit cards maybe convenient, but can cause financial hardship for people and give more revenue to banks.