Millions of Wells Fargo & Co. credit card customers will soon feel the pinch of higher rates, as the bank and other major credit card issuers rush to get ahead of new consumer protection rules that would limit their ability to jack up rates.
The San Francisco-based bank, the nation's eighth largest issuer of credit cards with $22.3 billion in total balances, said Wednesday it plans to raise interest rates by 3 percentage points on the "vast majority" of its 5.9 million credit card customers. The higher rates will go into effect on Nov. 30 -- one day before Congress wants to enact new rules that put strict limits on rate increases on existing credit card accounts. Customers of Wells Fargo will begin receiving letters as early as today notifying them of the change.
The higher rates will not apply to Wells Fargo credit card accounts opened within the past 12 months.
"We've been holding off hoping that we didn't have to make this change," Kevin Rhein, head of card services for Wells Fargo, said in an interview Wednesday. "But based on the fact that the economy is not improving and due to continued rising costs, we really believed we needed to make this change to continue offering credit to as many people as possible."
However, Rhein added that timing of new credit card legislation was "certainly one of the factors" that played into Wells Fargo's decision to hike rates. This spring. Congress approved landmark credit card legislation that would prohibit credit card issuers from raising rates on most credit cards, unless they were variable-rate cards or more than 60 days delinquent. The new rules were not scheduled to go into effect until February, but congressional leaders are pushing to move up the effective date to Dec. 1.
"The door cracked open just a little bit, and credit card companies wasted little time drastically changing the terms of people's contracts by the millions," said Lauren Bowne, staff attorney with the Consumers Union in San Francisco.
Wells Fargo is hardly alone in trying to get ahead of the new rules. Since April, the average variable rate on new cards has risen to 11.41 percent from 10.86 percent at the start of the year, according to Bankrate.com, a consumer finance website. This rate increase has occurred even as the benchmark prime rate, the index to which many credit cards are pegged, has remained unchanged at 3.25 percent.
Greg McBride, a senior analyst with Bankrate.com, said card companies have been less discriminating in raising rates than in the past, even jacking up rates on customers that have unblemished credit histories.
"It is understandable that they want to manage their risk," McBride said. "The concern is the fire-ready-aim approach where some consumers have experienced arbitrary rate hikes or credit-line cuts without exhibiting any change in their financial situation."
Rhein said the bank is giving consumers some relief by eliminating charges for spending over credit limits.
Wells Fargo made $923 million in card fees in the quarter ended June 30, a figure that includes revenue from its debit cards. The bank does not provide detailed financial statements for its credit card division.
Chris Serres • 612-673-4308
