Facing losses on bad loans, banks boost credit card rates

Though card defaults are still mild compared with historical levels, Fitch Ratings expects them to rise through 2008 because, "We're not sure the Fed cuts will have an immediate effect" on consumers, says Christopher Wolfe, a managing director at Fitch. The firm expects credit card charge-offs to climb at least 35% and auto-loan losses at least 50% this year.

As defaults rise, auto lenders are becoming stricter about who qualifies for loans. GMAC Financial Services is making fewer loans to consumers with poor credit, says spokeswoman Gina Proia.

Still, those who qualify for auto loans are generally able to stretch their payments over a longer period — meaning lower monthly payments — as cars have become costlier, says John Bella, a managing director at Fitch. But Bella warns that banks could cut back on these longer-term auto loans if their losses on them escalate.

Some student-loan borrowers, meantime, can expect to pay more. Mark Kantrowitz of FinAid.org, a financial aid site, expects interest rates on private loans — which aren't guaranteed by the government — to rise by between a quarter of a percentage point and 1½ points over the next few months.

As the economy weakens, consumers should look out for such changes in loan terms and rates — especially on credit cards. Banks generally must tell consumers in writing of "material" changes in terms.

Some of the stricter policies banks are imposing:

•In mid-April, Bank of America will start charging 3% for balances transferred to all its credit cards, rather than capping fees at $75 to $100 on some cards. Last year, it also raised, to $3, the fee it charges customers of other banks for withdrawing money from its ATMs.

•Chase has raised ATM fees charged to other banks' customers for using most of its ATMs. Wachovia says it's testing the higher fee for withdrawals by other banks' customers at 4% of its 5,100 ATMs.

Chase spokesman Tom Kelly says it's "appropriate" to charge other banks' customers $3 to use Chase ATMs because "it's continually more expensive to buy and service machines."

•Citigroup cis weighing similar changes to its credit cards. Last month, after the bank announced a large write-down on bad mortgage loans, CFO Gary Crittenden replied to an analyst's question about whether Citi would "pull back (on offering cards) or increase pricing or neither" by saying it was doing "all of the above."

A majority of Citi's recent card losses occurred in five states — California, Florida, Illinois, Arizona and Michigan — where a disproportionate number of customers are defaulting on mortgage bills, it says.

•Discover Financial dfslast year raised the top rate charged to risky new card customers and raised late fees for most of its customers. Spokeswoman Laura Gingiss says the company "assess(es) different risk factors on an ongoing basis," which could result in changes such as higher APRs on credit cards.

•Capital One cofmade a slew of changes to its credit cards last year. They include shortening the grace period — the time that customers have to pay their bills without incurring interest charges — to 25 days from 30 days and raising the cash-advance fee to 23% from 19%. In 2008, the issuer plans to "assess fewer fees on customers as they continue to adjust to (last year's) new pricing," CEO Richard Fairbank said last month.

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