Credit unions no longer a safe haven

In this ever-changing and tumultuous world of consumer credit, no borrowers are completely safe from the whims of frantic lenders--even the so-called safe ones. Often considered the best option for consumer loans, credit unions are becoming more like their rogue cousins: commercial banks. 

Based on recent e-mails and comments sent to me from frustrated consumers, credit unions are beginning to adopt and to implement changes to their credit card accounts, including increased interest rates and stricter terms.  This comes as a surprise given that amid the widespread outrage against commercial banks, credit unions have been touted as the safe alternative.   

One such customer wrote me:

Chase to jettison small business lines in March

When a ship is sinking, its crew members are last to disembark regardless of who or what is to blame for the disaster.  In other words, passengers are at the top of the hierarchy during a maritime triage. If our financial system were a huge ship about to go under, this moral convention would be turned upside down: Ruthless banks would rush to secure lifeboats for themselves, knocking over consumers and small businesses and leaving behind everyone to fend for themselves.    

Among the many casualties on this boat would be small businesses, the most important sector of our gigantic economy.  (Over the last decade, small businesses have generated 60 to 80 percent of net new jobs in the country.)  Despite the catastrophic effects of the financial crisis and credit crunch on these businesses, the government has been slow to offer much substantive help.  On the contrary, the swift passage of the Credit CARD Act of 2009 gave consumers, not businesses, life jackets and a better chance to survive the cold, oceanic currents. 

For whatever reason, small businesses have been overlooked when it comes to receiving protection against the whims of banks looking to curb their losses.  Perhaps it is because small businesses don’t vote. Or maybe it is because they are a major risk.  As a result of this vulnerability, banks have been changing rapidly their credit terms for small businesses by reducing credit limits, eliminating access to lines of credit, and raising minimum payments twofold. (I wrote about American Express doing this about a year ago.) 

Most recently, Chase sent me a letter, outlining new adverse terms for its business lines of credit.  The changes will go into effect on Mar. 31.  My business line of credit originated with Washington Mutual, which was acquired by Chase during the height of the financial crisis. As a Texan might say: “This ain’t my first rodeo”. I had a premonition that any notification around this time was likely to be bad news.  I read the cryptic letter like an attorney from Harvard Law School.

Here are the morbid highlights:

Capital One raises my interest rate seven percentage points

The party is over: The reprisals of credit card companies have begun, as if on cue the moment the Senate made increased regulation a reality. 

On Friday, the same day President Obama signed the Credit CARD Act into law, I received correspondence from Capital One notifying me that my interest rate will increase, effective for all billing periods after Jul. 2, 2009.  Simply put, the rate on my business platinum account will rise from a reasonable 15.9 percent to 22.9 percent—a 44 percent increase in the rate. I am afraid to ask what the penalty rate would be.  Thirty-five percent?

American Express “eliminating interest-free grace periods”

An American Express Costco Card customer, who says that she has never carried a balance, alleges that American Express is “eliminating interest-free grace periods”.  In other words, the company is now applying finance charges to fully-paid balances within the grace period.

Small businesses devastated by the credit crunch

Yesterday, I received a call from a good friend of mine who is president of a chamber of commerce.  Also on the call was a successful, small business owner who I have never met.  (Let’s name him Chris for convenience.)  They called to inform me of yet another horror story that involved American Express, but this story was a little different because I normally hear about consumer credit horror stories, not business horror stories.

In a nutshell, Chris, whose company is doing well and was offered the American Express Black Card at one point, had his credit line reduced tremendously.  Unfortunately, there was no warning.  He found out while on a business trip in Germany when his card was declined.    I listened to his story, told him what I know about the changing industry, and gave him some advice.

Recently, an article appeared in The Wall Street Journal detailing similar stories.  The credit crunch is hitting small businesses the hardest, causing the rate of business bankruptcy filings to outpace consumer bankruptcy filings over the past 12 to 15 months. 

American Express decommissions business line of credit products without adequate notice

[ View Notification Letter ]

Much to the inconvenience and continued frustration of its customers, American Express recently announced that it is decommissioning two major products: the Business Line of Credit and Business Capital Line Program.  Both products will no longer exist beginning January 15, 2009. 

In untimely letters to its customers, American Express cites the reason as increasing focus on its core set of products. Afterwards, the letter proceeds to outline new terms for all accounts. 

Devastating effects on small businesses

As mentioned in previous posts, American Express has notified customers of their abrupt changes in the worst way.