Mel Brandt said he got a Citibank Home Depot MasterCard for its rewards program. His reward for paying on time was an interest rate increase to 19 percent from 12 percent, Bloomberg reported.
"If I didn't opt out and close the account, I'm afraid the interest payments would snowball and I would default," said Brandt, 52, a self-employed house painter in St. Louis, who relies on credit cards to fund his painting business.
Lenders came under fire yesterday in a U.S. Senate Banking Committee hearing for raising interest rates, adding fees and cutting credit lines, even for consumers perceived to be low- risk with high credit scores. Connecticut Democrat Christopher Dodd, the chairman, called the practices "gouging."
The federal funds rate, or the interest rate banks charge each other for overnight loans, is as low as zero and U.S. lawmakers have agreed to a $787 billion economic stimulus plan funded by taxpayers.
Rates for consumers should be falling faster than they are, said Ben Woolsey, director of marketing and consumer research at CreditCards.com, an online resource for credit-card users. Banks, facing an increase in defaults and a decline in consumer spending, are "still very reluctant to pass lower rates or increased credit access to consumers," said Woolsey.
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