In his effort to claim credit for Chase's relatively minor concession, the New York AG actually provides Chase political cover to rewrite offers accepted and honored by hundreds of thousands of cardholders.
First a bit of background. Last November, Chase credit card division notified some 400,000 cardholders that effective January 1, the terms attached to their accounts would be changing. Chase said that the targeted accounts were those in which customers were carrying low-rate loans which were to be paid back over "the life of the balance".
Now credit card issuers change terms all the time. Even so, these changes stood out. One key reason is that unlike other changes in terms, these offered no "opt-out" provision. Customers were told that they had no choice but to accept the changes, even if they closed their accounts. A second reason is that these changes were only applied to accounts with existing promotional balances which remained in good standing. A third reason was the unusually bold changes themselves:
1. A $10 monthly "finance charge" would be assessed on the accounts each month, whether they accounts were used or dormant; open or closed.
2. Monthly minimum payments would increase from 2% to 5% of the remaining balance.
Since they were announced, these changes have gradually attracted more attention from the media. Harsh criticism from regulators, commentators, and cardholders has followed. To date, over a dozen class-action lawsuits have been filed against Chase over these changes.
Fast forward to this past week.
Last Thursday, Chase spokeswoman Stephanie Jacobson announced in a carefully worded statement that Chase was ending the new monthly charges and refunding those charges already collected. In response questions about why Chase reversed course on the fee, Jacobson cited "customer feedback." The statement was carried on the business wires that evening and was widely disseminated. Yet in light of the attention the issue had received previously, the policy change did not generate much commentary. I assessed these changes that evening at www.rethinkingmoney.com, arguing that the $10 charges were of trivial importance compared to the monthly payment changes. But I am not aware of other sources who found the reversal worthy of much scrutiny.
By Monday, the attention paid to Chase's reversal had waned almost completely. That changed abruptly when New York Attorney General Andrew M. Cuomo issued a press release claiming credit for Chase's decision to halt and refund the monthly charges. The new round of attention wasn't primarily due to Cuomo's adding a political element to the story by claiming that Chase nixed their charges "as a result of the Attorney Generals actions". It was also that Chase disputed Cuomo's claim for credit with its "customer feedback" reason, as well as the figures Cuomo cites in his statement. Several writers who have been following the story were careful to note these differences in opinion.
But here's the key point that no commentator has made so far: Cuomo is saying that Chase is now honoring the terms it "originally offered" its customers. Quoting from his press release (emphasis added):
Attorney General Cuomo said: "My office will not sit back and allow banks to promise one thing in its solicitations and agreements with consumers, and then when times get tough, change the deal, leaving consumers holding the bag. Truth-in-lending laws prohibit this very conduct. I am glad that Chase has now reconsidered its ill-advised decision and will now live up to the terms it originally offered and agreed to."
One hopes that Mr. Cuomo did not give this casual statement much thought. Observers might disagree over the relative importance of the $10 charges versus the minimum payment increase that Chase is retaining (from 2% to 5%). But since that increase remains in effect, Chase is indeed changing "the deal", which is now very different from the "terms it originally offered and agreed to." Moreover, Mr Cuomo and other officials should be mindful of the precedent such reasoning could set. If Cuomo's view here were to become conventional wisdom, what would stop lending card companies from hiking required payments as high as they might wish?
I applaud Chase for reversing the $10 charges. And I have no idea how much of a role Cuomo played in that reversal. But in any case, Cuomo did Chase customers a disservice by suggesting that the deal they accepted from Chase had not changed. And I hope that going forward, the financial press will be attentive to such lapses.
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Nice article! Another reason Chase wins despite their relatively minor concession is that they have already forced most of the affected cardholders to either pay their accounts off in full, or switch to a much higher interest rate. Originally 400,000 customers were said to be affected. Chase is now saying that they will refund fees to 184,000 customers, which suggests to me that over half of the affected customers were effectively strong-armed into paying off their accounts, or agreeing to the higher interest rates. I'm sure Chase executives are indeed crowing over how effectively their strategy worked. They've achieved their goal of getting rid of most of their low-rate, low-profit accounts.
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Great point white-tea. While the exact numbers are in dispute, it's very clear that Chase's tactics sucessfully shed many of these low-interest loans from their books.
A related figure not released by Chase was how many of the targeted cardholders were sucessfully converted from sub-four-percent interest rates to the 7.99% rate cardholders were offered if they called in.
We'll be watching this matter closely. Thank you for taking the time to comment!
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Although the additional $10 monthly finance charge ("which would not affect your APR") was blatantly illegal... relatively speaking... it was the trivial component of the change in terms.
The effect of raising the (minimum) required payment from 2% to 5% is functionally identical to the recent round of ARM resetting. It pushed people into default... followed by universal default... and the APRs on all outstanding debts get raised to (something as absurd as) 30%. Ultimately... the banks take away all your chips and you're forced into a lower standard of living... and into a whole different game.
By far... increasing the (minimum) payment required by multiplying the agreed-to (minimum) payment by 2.5 (e.g. from $100 to $250) is more dangerous to the consumer than the $10 per month.
With certainty... Cuomo's heroic accomplishment was a well planted diversion.
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I agree completely that the $10 "finance charge" was trivial in comparison to the surging monthly minimum. Will be interesting to see how this unfolds. Thanks for commenting vitocaputo.
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An update: Chase has sent out a second wave of notices to an even larger set (over 850,000) card holders. This time there is no new press release or explanation supporting their action.
And surprise: one difference this time is the new fee is missing. Only the minimum payment hike from 2% to 5% remains.
I'd argue that the cover given by Cuomo and others helped make this seem like a sound tactic to Chase.
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Chase has been hit with 14 class actions suits over this issue. In my opinion, imposing a monthly fee on these accounts was blatantly illegal and certainly the weakest part of their scheme. The reason is that the offers stated a fixed "APR" . and under federal truth-in lending regs, when you add an additional finance charge to a loan it increases the APR.. Chase in its change in terms docs acknowledged that the monthly fee was a finance charge.but claimed the APRs were unaffected. I think they decided they could never win that one.
The increase in payments is more onerous but slightly more likely to survive the legal challenge. As we all know they are relying on the language in the basic agreement, which says they can change the terms at anytime A clause I have come to regard as Chase 22.
That being said, I believe that the offer and subsequent change in terms amounts to an unfair and deceptive business practice under FTC regs. I would contend that no reasonable person contemplating the offers would have anticipated the possibility that at some time in the future Chase would more than double the monthly payment for no other reason than that they had accepted the Chase offer. Which is, in so many words , their official reason stated on the notice.of change. I think and hope they will lose this one too.
Unfortunately, the fact that somehow (politically) card issuers have been given the right to unilaterally change the terms of a loan after it has been made without the right of a borrower to opt out ("Chase 22") doesn't make legal sense to me. I have always been under the belief that for a contract to be valid, there had to be a " meeting of the minds" an understanding of the terms. How can those things be when one of those terms states that one party can unilaterally make unspecified changes to all of the other terms at anytime, for any reason and the other party is bound to those changes?
Having done that, they then send out the mandatory changes stating that "You agree" to them, when in fact you haven't agreed at all. That's an agreement ?
It would be nice if all those affected would simply refuse to make payments until Chase honored what we all believed (including Chase) the original terms of the offer or until the courts decide, but I know that' s not going to happen. Which shows how strong their grip is. But I urge everyone
to do as little business with Chase as possible. And urge your friends to do the same.
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fili5rblay, good comment. I agree with you that there is no plausible "meeting of the minds" with respect to this "change in terms." All the moreso given that many who accepted the "fixed rate for life" offer had it explicitly described to them as a "fixed rate loan".
Well, no "fixed rate loan" EVER accelerates its payments absent a default. And yet Chase admits that they did exactly this.
I will update these comments with additional developments as they arise. Thanks to all who are chiming in.
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I recieved a letter from Chase today. One year after they increased my rate to 7.99% they are restoring my original rate and refunding me the difference!
AND I called to see if my new payment will be bumped to 5% - NO! 2% of my outstanding balance!
I don't know who was responsible, at this point I don't care. Someone was looking out for us and I appreciate whomever it was!
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David R Hanson replied 9 days ago
Wow, that's exciting...congratulations!
Would you elaborate please? Specifically, did they increase your rate to 7.99 because you called to complain about having your minimum payment increased to 5%? Or was the rate increase due to some other reason?
If you'd rather not post publicly, would you please email me at filife ss sent.com?
Again, thanks for contributing.
Well, I'm not sure what they had offered me last year. I'm one of those people who really don't look at all the junk mail that credit cards send you every month. I never opened any "change in terms" letters that Chase had sent to me. I have my bills set up on automatic payment and just glance at my statements. So last January, I received my statement it said that I had not made the minimum payment! I called Chase because I ALWAYS pay on time and more than minimum. That's when I learned that they were assessing a $10 monthly charge and bumping the minimum to 5%. I told them that was ridiculous and couldn't possibly be legal and that I was opting out. They told me I couldn't opt out even if I cancelled my account, I would still have to honor the new terms BUT they would allow me to continue making the 2% minimum and not charge the $10 if I agreed to the 7.99% rate. I did the math quick and the 7.99% was a no brainer in my situation.
When I got the letter today, I got online to see if all the other people who were in my situation got the same letter, but it doesn't seem that way. THAT'S when I decided I better call them. The letter did not say that my minimum would stay at 2% and I thought that I was going to be told that it would go to 5%. But, the customer service rep (who seemed much more pleasant than I remember in the past) told me, "No, your minimum will be 2%."
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David R Hanson replied 9 days ago
Thanks again kjkroop. What rate were you at before Chase increased it?
3.9%
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David R Hanson replied 9 days ago
Again thank you kjkroop.
Your experience is important news in this ongoing story. If you are willing, please contact me at the address I gave above. You need not disclose your identity, and you (or anyone else similarly situated) has my personal assurance of complete confidentiality.
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