Banks getting federal TARP aid tighten lending, leaving consumers angry

By Becky Yerak, Tribune reporter

Wilma Erwin is fuming.

As a Discover Card customer for 18 years with a track record of paying her bills on time, the retired principal got a notice April 15 that her card's 10.99 percent rate will jump to 15.24 percent.

"It made me angry, and that's unusual for me," Erwin, 64, said. "It's against everything that America was built on, saying to the valued customer that you get the slap with everyone else who's not paying their bills."

The Garrison, Ky., resident said she plans to pay off the $2,079.98 balance and, unless Discover honors her current rate, will cancel the card and seek a better deal, or just use an existing Chase card as her family's main card.

Riverwoods-based Discover Financial Services is among 540 institutions that received money from the Treasury Department's Troubled Asset Relief Program. The program's goal was boosting capital levels of financial institutions, thereby easing lending. Discover received $1.2 billion March 13.

Other recipients include Bank of America Corp., which has collected about $45 billion in TARP and other government aid. It also has hiked interest rates and cut credit lines on some cards.

The higher rates and tighter lines of credit have surprised some consumers.

Thomas Charles Kenniff of Naperville said he has never missed a payment on his two BofA credit cards and pays them off monthly. But he recently was told that one card's credit line was being slashed to $14,500 from $28,900, and another to $17,000 from $33,500.

The retired lawyer, 71, said a BofA customer service representative told him the bank reduced his available credit so he wouldn't run up any high balances.

"I'm kind of cynical, but I just didn't believe that," Kenniff said. "Bank of America has had its chubby posterior stuck, and when the government started taking my tax dollars and throwing them out the window, Bank of America was a big recipient."

So Kenniff said he asked the BofA representative, tongue in cheek, to recommend someone from the government he could talk to about his situation. "She wasn't very helpful about that," he said.

Kenniff is considering canceling his cards, but realizes he would have to get another one. Plus, "I'm going to a wedding in late May and made a reservation with one of them," he said.

Also, applying for new credit can hurt your FICO score.

For the past year, Jim Bilello, 49, has enjoyed a 1.9 percent promotional rate from Discover, but recently learned his rate was changing to a variable rate equal to the prime rate plus 16.74 percent, or 19.99 percent.

Lucky for Bilello, a Mundeleinresident who said he has an 800-plus FICO score, he pays off his credit card balance monthly. But the increase still upsets the owner of US Marketing Inc., which specializes in young adult and multicultural markets.

"You'd think that Discover would lower rates for good customers to get them to use their card more consistently," he said.

Discover said only a small percentage of its customers are being hit with the rate hike.

"The repricing is being undertaken in response to economic conditions, not because of customer payment behaviors," the company said. "It's one of the factors that enables us to continue to lend to consumers who need access to credit right now."

Card members can choose to not accept the changes to their card by notifying Discover in writing of their desire to close their accounts and repay balances under existing terms.

Discover also said it will work with card members to develop payment programs if they're experiencing financial difficulty.

BofA said it closely monitors accounts for risk and might adjust customers' credit lines based on their risk profile.

"We are taking a more aggressive look at accounts to control risk, given the current environment," a BofA spokeswoman said.