Despite Fed’s cuts, credit card users are hit with higher fees and rates

The Federal Reserve has slashed its benchmark rate to 1 percent, yet many people are getting hit with higher rates and fees on their credit cards.

Normally, when the Fed cuts rates, credit card issuers follow suit, resulting in lower monthly payments for cardholders. Though average credit card rates have fallen slightly as the Fed has cut interest rates, banks and retailers are trying to offset rising losses in their credit card operations by raising rates and fees across a broader swath of their existing customers.

Banks had already been tightening the screws on people with less-than-perfect credit in recent months. Now, even customers who pay their bills on time will find it more expensive to carry a balance.

J.P. Morgan Chase & Co.’s Chase unit is raising its rates on credit card cash advances and overdraft protection, as well as its default rate, which is triggered when cardholders exceed their credit limit or are late on their payments. The bank will also start charging a new $10 monthly service fee to some cardholders who have been carrying large balances for at least two years, while raising their monthly minimum payments to 5 percent of their outstanding balance, from 2 percent. Citigroup Inc.’s Citibank unit and American Express Co. have been notifying groups of cardholders that they will be raising their regular interest rates by two to three percentage points. In addition, Amex is raising its rates on cash advances, late payments and defaults, increasing its foreign-exchange fees to 2.7 percent from 2 percent on its consumer and small-business cards and eliminating ways to earn rewards on one of its popular cards.

Retailers are also getting stingier with credit. Home Depot Inc. reduced credit lines on its in-store cards, which are issued by Citibank, for customers with delinquent accounts or those whose credit scores have dropped dramatically. Nordstrom Inc. began notifying customers that it was raising interest rates on its store credit cards, while Target Corp., which has also raised interest rates and late fees, is issuing fewer cards and reducing spending limits as customer delinquencies have jumped sharply.

Many big banks reported weak credit card results for the third quarter, with “charge-offs” — reflecting loans considered to be uncollectible — rising to over 5 percent of total credit card balances and poised to deteriorate further.

Card issuers cite the current economic turmoil to explain the changes. “Obviously, this is something we’re doing to reflect the cost of doing business,” says Desiree Fish, an American Express spokeswoman.