Banks to raise rates, cushion losses
With banks reporting poor performance in the fourth quarter of 2007 and loan delinquencies on the rise, banks are raising rates on consumer loans – from credit cards to auto loans – to cushion their losses. This presents an opportune time for credit unions to promote their services and low rates and fees to attract new members and build member loyalty through account relationships.
In a USA Today article, Synergistics Research notes that banks are going to become more aggressive in order to make up the income.
Even as the Federal Reserve has aggressively slashed short-term interest rates, banks are raising rates on some credit cards. They’re also boosting late fees, lifting caps on balance-transfer fees, and raising ATM fees for other banks’ customers. As loan losses surge, banks have become quicker to raise certain fees and rates.
For example, in mid-January, Bank of America reportedly sent out letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase. The so-called “opt-out” letters give borrowers the option of no longer using their card and paying off the balance at the old rate. But they must write Bank of America by later this month if they plan to do so, otherwise their rates on existing and new balances automatically rise.
Congress has held hearings on whether banks need tighter regulations on fees and rate increases to protect consumers. A Federal Reserve survey of senior loan officers last month found that 13 of the 53 banks surveyed have widened the spread — which could boost their profits — between what it costs them to borrow and what they charge on certain consumer loans. Four of 39 banks surveyed widened spreads on credit cards.
Banks are also looking at cutting costs through personnel layoffs, branch consolidations, and limiting branch expansions.