Credit Card, Bank Fee Hikes Spark Outrage

April 13, 2009— -- The billions of dollars that banks have received in taxpayer funds since last year have been a growing source of outrage for American consumers. And in recent months, some banks have added serious insult to injury, leaving Americans like Tony Cesnik fuming about hikes they're seeing to their credit card rates and other bank-related fees.

"The banks have been given billions of dollars of tax money and only lend it out if customers are willing to pay extortion rights," said Cesnik, a Concord, Calif., resident, in a message to ABCNews.com. "The banks need a legal spanking. They are acting like spoiled brats!!"

Myriad banks have steadily been increasing credit card interest rates for some card holders in recent months. Bank customers are also seeing spikes in other fees: charges for bounced checks and ATM surcharges are climbing, according to Bankrate.com, a Web site that surveys financial institutions.

Scores of Americans sent angry messages to ABCNews.com about bank rate hikes. But everyday consumers aren't the only ones who believe something is awry -- the congressional panel that oversees the government's bank rescue plan, the Troubled Asset Relief Program, is taking an interest in the issue.

The Wall Street Journal reported today that complaints about bank fee spikes have prompted the Congressional Oversight Panel to launch a probe into the issue.

A panel official told ABC News, however, that there is no investigation under way but rather the issue may be covered in a future report.

"The people who subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending," Elizabeth Warren, the chairwoman of the panel, told the The Wall Street Journal. "In a sense, we're asking taxpayers to pay twice."

Banks Profits Reported This Week

Outrage over the higher fees has grown even as banks, which are due to release first-quarter earnings reports in coming days, have said they've seen a profitable start to 2009.

Last week, Wells Fargo said it expected record first-quarter earnings of $3 billion. Earlier this year, executives at Bank of America, Citigroup and JPMorgan Chase also said they are seeing profitable quarters.

But despite those positive results, the banks have also raised fees and credit card interest rates. Most recently, Bank of America -- which has received $45 billion TARP funding -- announced that it was raising interest rates on credit card customers who carry a balance.

One reason for such increases, some say, is that banks are trying to compensate for rising credit card defaults. But that reasoning just isn't enough for consumers like Gary Gates, of Marcellus, N.Y.

"You might be able to justify a small increase," Gates said in a message to ABCNews.com, but the banks "go overboard."

Why Rate Hikes? Banks Cite Tough Economy, High Borrowing Costs

A Bank of America spokeswoman told ABCNews.com that credit card customers who saw increases had their rates rise from below 10 percent to "the low- to mid-teens."

Betty Reiss said that the increase in loan defaults by Bank of America customers and other factors, including relatively high borrowing costs between banks, contributed to the bank's decision to raise rates.

"This is about properly pricing our portfolio either based on risk or realigning a portion of the portfolio that is priced below what is prudent in the current market," Reiss said.

Citigroup, which has received $50 billion TARP funds -- the most of any bank -- declined a request for comment.

The American Banking Association defended the banking industry today.

"I think the key thing to recognize is that what banks are doing is reacting to broader economic forces, the fact that we are in a recession," said ABA spokesman Peter Garuccio. "Whether we like it or not we're all less credit worthy today than we were just a few months ago."

Garuccio said that it's become harder for banks to fund credit card lines because it's more difficult to package credit card loans and sell them as securities.

"Roughly 50 percent of all credit card loans are funded through securitization," he said. "Because of the freeze up that has occurred in the capital markets that source of funding is relatively dry now."

Help for Credit Card Customers?

There is some relief on the way for credit card holders. Late last year, the Federal Reserve created new rules to protect cardholders from some interest rate hikes.

The rules include a restriction that will allow credit card companies to raise rates on existing credit card balances only when card holders are more than 30 days late, when they are receiving a promotional interest rate with a defined expiration date, or if the interest rate is tied to a specific market index, such as the London Interbank Offered Rate. Under the restriction, card companies would still be able to raise interest rates on new charges.

Bank Customers Close Accounts

The rules, however, don't go into effect until next year. For now, Congress is considering legislation that would impose similar rules sooner.

Some aren't waiting for government help to address their credit card troubles: They're closing their accounts.

"I believe the banks are not considering that the consumer can change banks, and I can assure you that I will," wrote Mary Wiles of Topeka, Kan. "It is like a slap in the face and I take it very personally."

For more on what you can do about high credit card interest rates, check out the latest column from ABC News consumer correspondent Elisabeth Leamy.

With reports from ABC News' Charles Herman and Justin Rood.