Capital One: Low Blow to Low Interest Rates

October 19th, 2009. By LucyC

Capital One got hit with a potential class action lawsuit this week, and one guess what it’s about? Interest rate hikes on its supposedly low interest rate credit cards. 

I would dare to hazard a guess that unless you live in a cave, you have likely seen one of the several Capital One’s ads promoting their low interest cards… you know the “what’s in your wallet?” campaign? Not a lot by the time Capital One is finished with you, from the sounds of things. 

The back story is sadly, not unique, but rather the predictable narrative of deceptive business practices which appear to have become the hallmark of big banking.

Capital One, the suit alleges, raised interest rates on many card holders whose accounts were in good standing. Why? Apparently the bank lost money when Wall Street collapsed last year. So who didn’t lose money when that happened? How does that excuse rewriting the fine print on demand, and not telling your customers? Short answer, it doesn’t. Hence the lawsuit.

According to an interview with the attorney who filed the suit, which was published in the online journal Law.com, one of Capital One’s advertised claims was that its customers would enjoy low interest rates on their credit card balances and their annual percentage rates would not increase unless they defaulted or otherwise established a poor account history.

One of the lead plaintiffs, Navy Lt. Commander Barker, had a 7.9% annual interest rate on purchases on his card, but in August Capital One raised that rate to 17.9%, which reportedly doubled his monthly payments. Worse, not only did Cap 1 raise its ‘low’ interest rates, it also applied those rates to existing card balances, retroactively, apparently. Now that is creative.

It’s anyone’s guess as to how many people may have suffered a similar fate, but it could be in the millions.

Last May, Congress passed new credit card rules designed to limit when credit card interest rates may be increased on existing balances; prohibit over-limit fees without the express consent of cardholders to authorize charges that exceed their credit limits; and regulate other practices that maximized fees and interest at credit card holders’ expense.

But many of those provisions will not come into effect until next year. And then what? Will those regulations provide for any type of compensation to those who have already suffered damages? I suppose that remains to be seen. For my money, what little of it I have left, I would be joining a class action. Where’s the grey area?

Tags: Capital One, credit cards

This was posted on Monday, October 19th, 2009 at 5:23 pm and is filed under Financial . Feel free to respond, or trackback. Read our comments policy.