Federal Reserve Cuts Interest Rates, but a 'Floor' Lets Companies Keep Credit Card Interest High

 http://abcnews.go.com/Business/PersonalFinance/story?ida00641&page=1
ABC News

Interest rate cuts? Not on credit cards
As the Federal Reserve Cuts Interest Rates, a 'Floor' Keeps Credit
Card Companies From Following Along

By Kathy Chu, USA TODAY

      Despite falling interest rates, a growing number of consumers
are paying the same -- or even more -- to borrow on their credit
cards.

The majority of credit cards on the market have variable, or floating,
rates. Theoretically, that means that as the Federal Reserve lowers
its federal funds rate -- the latest cut took place this month -- card
holders should also see their borrowing costs fall.

In reality, though, banks often set a "floor" that credit card rates
can't fall below, and in many cases, that floor has already been
reached, analysts say.

Wells Fargo, HSBC, Discover, SunTrust and National City have a floor
on at least some of their credit cards. Wachovia, meanwhile, limits
how far its penalty interest rate -- applied to consumers who pay late
twice in a row -- and cash advance rate can drop. But the bank imposes
no minimum interest rate on credit card purchases.

Others, including Bank of America, American Express and U.S. Bank, say
they have no floors on credit card rates. Chase and Citigroup,
meanwhile, declined to disclose whether they have this policy.

Imposing a floor on credit card rates allows the bank to "continue
lending even in challenging environments," says Todd Morgano, a
spokesman for National City.

But such interest rate restrictions mean that borrowers with good
credit may not see their rates fall below 10%, while those with bad
credit may not see rates lower than 20%, says Greg McBride, a senior
analyst at Bankrate.com.

Even without such policies, banks are historically slow to pass along
interest-rate reductions. Since August 2007, the Federal Reserve has
cut rates by 3.75 percentage points, but the average credit card rate
has fallen only 1.4 percentage points, to 13.9%, according to Justin
McHenry, research director at IndexCreditCards.com.

Issuers have also become more aggressive about tacking on fees and
raising borrowers' rates -- as high as 32% -- for the slightest
misstep, such as going over the limit or paying late.

Joseph Ridout, a spokesman for Consumer Action, an advocacy group,
believes the rate increases are banks' attempt to "make up" for
ballooning mortgage losses.

"Credit card issuers don't have to follow the same rules as other
lenders do," Ridout says. "They can really change terms of your
contract as they want."

Borrowers with good credit who aren't getting the benefits of interest-
rate reductions should consider changing lenders even though their
credit scores may temporarily drop, McBride says. "If you can find a
card that cuts your interest rate and helps you (with) debt reduction,
it's worth it," he notes.
__________

  It isn't a 'floor' that is keeping my Credit Card APR high - it is because
they base their rates on LIBOR - the interst rate in LONDON banks.  Ticks me
off.

JonquilJan

Learn something new every day
As long as you are learning, you are living
When you stop learning, you start dying

 

No it isnt LONDON banks.

 


because

Okay what is LIBOR then.  I had a friend, who is a financial advisor,
research it for me.  She printed out results from a Google search -
comparing LIBOR and Prime Rate.  And it clearly identified LIBOR as from
London banks.

JonquilJan

Learn something new every day
As long as you are learning, you are living
When you stop learning, you start dying

 

http://en.wikipedia.org/wiki/LIBOR


It may well have had the word London in it, but it isnt London banks.