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.
Subscribe to:
Post Comments (Atom)
3 comments:
I think the bank is cheating its customers because the bank is not informing it customers beforehand about doubling the interest rate. Even though the law allows this bank to increase its interest rate, they should inform their customers, so people like Tommy doesn't get surprised. The bank is very irresponsible for not informing the customer beforehand and not very resonable for doubling the interest rate. Increasing the interest rate slightly is reasonable since banks are losing money, but doubling the interest rate is not reasonable because not everyone would be able to handle the sudden increase. If you were a customer of this bank, would you cancel your credit card?
I agree with you. Increasing the interest on a credit card is a good way to make money, but at the same time it doesn't seem reasonable to not warm this Tommy fellow about how interest rates have gone up. Especially since it went up by such a high rate. With the economy going down, i too think that lower income families should start relying more on cash. The heightening interest rates are going be devastating to the families, that cant pay it off, if the economy is heading the way it is. Another point is correct; Credit cards are undeniably convenient, but it can cause some major damage in a family's financial situation.
Hmm...This is wierd. From what I know, major banks in North America are actually lowering their credit card interest rates. This is caused by the recent economic slowdown. People aren't consuming as much as they used to and are avoiding using credit cards because they don't want to pay extra interest. This is obviously bad news for the banks since their clients are not using their credit cards anymore. Therefore, to prevent a loss in profit, they choose to lower the interest rate. But in your article, the interest rate of the credit cards are rising, my guess it that the banks mentioned in the article aren't major banks and they are not making enough profit, therefore they are rising the interest rate to prevent bankrupcy.
Post a Comment