Partners - Stock market, economic and political commentary by Patricia Chadwick

Just Say, “NO” to Capital One

Lately, I have been receiving numerous emails relaying credit card horror stories, in response to my frequent blogs on the subject. But the one I got on Friday takes the cake and I am retelling it because I know the person well who sent it to me, I can vouch for the facts and she has given her permission to share her story. In fact, when she wrote to me, she suggested that I do so.

She is a 20’s something young woman, who graduated from college eight years ago and for the last five years has been working in the financial world – not in a high powered job, just a job with a decent salary and a small bonus, far below $100,000. She has her own apartment and is saving up for a house which she will not buy until she can make at least a 25% down payment.

She mostly uses her debit card when she does not have cash in her wallet (a decision she wisely made after learning the hard lessons of building up too much credit card debt while in college) and she uses her credit card only for special needs. The most recent balance (in February) on her Capital One credit card was $1700, and she has been paying it down at the rate of $500 per month (far higher than the minimum required payment of $50). Because she recently made her last payment on a car she bought five years ago, she has increased her monthly payment to $750. You can do the arithmetic – she will be completely out of debt within three months. She has an impeccable credit record and an extremely high credit rating.

A few days ago, she received a notice in the mail from Capital One informing her that as of April, 2010 the interest rate on her outstanding balance will rise from its current 12.99% to 17.9% (or prime plus 14.69%). Emailing me her story, she wrote, “Shouldn’t they be rewarding their best customers?”

To add insult to injury, a few months ago, she made her monthly credit card payment (online) one day early (That’s right – not one day late, but one day early!!). The following month there was a $40 “late fee” on her statement. When she called to inquire why, she was informed that because she had paid a day early, Capital One had credited the payment to the prior month, and thus determined that she was late on the current month! Imagine having an algorithm in an accounting system that treats early payments as late payments. From my point of view, that is criminally negligent management if not actually criminal behavior. Good for her for examining her monthly statement so carefully. Capital One Bank did remove the charge but only because of her diligence. Based on the complexity of the credit card statements I see, I wouldn’t be surprised if she is in the distinct minority. Which leaves me wondering how much money Capital One and other banks have made falsely charging customers?

The credit card crisis today for Capital One and the many other banks was totally the result of their own mismanagement and greed. For the last twenty years, they have extended credit over and over to credit-unworthy customers, reveling in the exorbitant and usurious rates they could charge, and turning the credit card business into the richest source of profits for the bank holding company.

Today the tables are turned. Those credit-unworthy customers are drowning in the 25% and 30% and higher interest rates accruing endlessly on their credit cards, and the delinquency rate is growing and soon will soar and the banks are scared. The senior managements of the banks know how serious the problem is. In fact, Ken Lewis, CEO of Bank of America, said as much less than a month ago in his testimony before The House of Representatives on February 11, when he admitted that it will be a “terrible year” for the credit card industry. And John Mack, CEO of Morgan Stanley, on that same day said that he hoped there was a way to lower interest rates on credit card debt.

So what is the solution being employed by the banks? They are trying to rescue their bad business decisions on the backs of their best customers. And unfortunately they can do that because they wrote the contracts that every customer must sign before being issued a credit card. That is capitalism gone amuck and a policy that will ultimately reap serious economic harm.

Senators and Representatives in Congress, please wake up to what is happening to the people you represent.

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6 Responses to “Just Say, “NO” to Capital One”

  1. David S. Says:

    Paying “one day early” may have resulted in two payments in a billing cycle, which would explain why the system would not have seen a payment for the second cycle. Let’s say that a bill is due on the 30th. If your friend had made a (second) payment on the 29th, it would have been credited to the period ending on the 30th. For proper crediting, payments should be made after a billing cycle has begun, which is shown on the statement (e.g., the 1st to the 30th). I doubt that the bank algorithms are as dumb as you indicate. Yes, the bankers were totally off base in their risk models, but one needs to be sure that a payment is applied to the proper crediting period.

  2. David S. Says:

    This article about Capital One from awhile back may interest you if you haven’t seen it. One of the potential downsides of data mining.


  3. admin Says:

    When one pays electronically, one doesn’t control the exact timing of the withdrawal nor of the credit to the amount due. Therefore, the banks need to have a nechanism that figures out whether the amount paid is early. This is even more true for snail mail, and when people are going away on vacation, and pay their bills in advance, that should not count against them. Somehow all the ‘errors and adjustments’ seem to work in the banks’ favor, and if the consumer is not ultra vigilant, he/she stands to pay for it. That is hardly what I would call a ‘full service bank’.
    Thank you for your comment.

  4. Jane Meador Says:

    Hi Pat,
    I, too, have a Capital One credit card and have carried it for over 10 years. I always pay MUCH more than the minimum due and they have still made plenty from me in interest charges.

    I received notice recently that they are increasing my interest rate from 6.9 to 15.99%. I called to complain about it and accused them of penalizing me, a loyal and responsible customer, with their errors in judgment by extending credit to those who cannot pay them back. After some “review” of my account on the phone, the representative said they would continue with my current rate until January 2010 at which time they will review the account again.

    I registered a small victory. Lesson learned: None of us should take their antics without putting up a fuss.

    Hope the family is well. We are doing fine and enjoying a mild winter here in Denver.
    Jane Meador

  5. admin Says:

    Jane, Good for you. Yes pushback is one tactic. Also emailing your Senator/Congressman/woman is another. If they get enough email, maybe they will look into it.

  6. Jackson Says:

    Capital One is impossible.

    I pay my Amazon Credit Card one day early it’s no problem. The money comes straight out of my checking account and applied to my account. Capital One is a snake. They ‘hold’ the payment for 24 hours and then will charge you a ‘late fee’ — I’ve tried this before. I sent in a check 2 weeks (!) early. The check doesn’t clear for two weeks. When they finally release it, then I got hit with a ‘late fee’–try to tell the idiot on the other end the story and you are on hold for 1 hour. Eventually you hang up. When I sent in a money order, the damn thing went thru the same day! Ahhh ha.

    I cancelled my Capital One credit card after I paid it off. They tried to get me to start using it again, I said forget it and cancelled it the same day they called. Oh boy, they didn’t like it. They even tried to make my credit line go up $3,000. I said ‘hexx no’ and cancel the stinky card, and send me a letter saying the damn thing is cancelled, which they did.

    Evil Capital One. I swear the Devil is the President