As Credit Card Interest Rates and Bank Fees Rise Consumers turn to Credit Unions for Help

Parts of the new credit card reforms that passed earlier this year begin to kick in today. Many consumers believe that because Congress allowed an extended period of time to lapse before implementing any of the new rules, the true intent of the reforms would not be realized, if as was expected, creditors rushed to find new ways to circumvent the upcoming changes. And that's exactly what they did.

In advance of the reforms, consumers soon discovered their credit card interest rates spiked and credit lines were either frozen or deeply cut.  With fixed rate cards all but disappearing, hefty credit card fees being tacked on and in some cases, minimum payments increasing from 2% to 5%, consumers are feeling squeezed. Many are turning to their local credit unions for help. And they're finding it. 

The American Debt Relief Challenge issued a press release today that demonstrates how one consumer when hit with a whopping 40.99% interest rate -saved himself considerable money by transferring his balance to his local credit union.

Credit card rates reach high of 40.99 percent as new law goes into effect today: Consumers turn to credit unions for help.

(Olympia, WA 8/20/2009) - Michael Wingate was shocked when his CitiBank credit card rate jumped from 4.99 to 40.99 percent. Wingate has a stable job as a supervisor at an aircraft parts manufacturing company. His credit score is good; over 700. He made his payments to CitiBank on time.

"It's the highest credit card interest rate I've ever seen." said Marylin Ball Brown, CEO of Generations Credit Union of Olympia, WA. "In the 1980's the rate would have been considered usury. It is an example of the difference between for-profit banks and not-for-profit credit unions."

Wingate's increased APR was the result of a predatory banking practice already addressed by the Obama Administration's Credit Card Accountability and Disclosure Act of 2009, which goes into effect today.

While it curbs future abuses, the legislation unfortunately could not return Wingate's interest to a traditional rate. For immediate help the family turned to their local, not-for-profit credit union. Generations, a small credit union located a few blocks from the Washington state capital, saved the family $33,000 over the life of the credit card by transferring the $10,400 CitiBank card balance to an unsecured loan with a traditional rate of 12.2 percent.

"Our credit union was able to help the Wingates as part of a national program called the American Debt Relief Challenge," said Ball Brown. "The projected savings for Michael's family of moving the balance of his card to our credit union is over $33,000.

"Some families are saving close to $200 a month through credit unions participating in the American Debt Relief Challenge," said Scott Butterfield, program co-founder. "The goal is to save consumers $300 million."

Butterfield explained that millions of Americans are burdened by bank credit cards defaulting to all time high interest rates as a result of the banking credit crunch and drive to increase profits. The American Debt Relief Challenge measures the projected savings from transferring a consumer's high interest bank credit card balance back to a traditional rate at a not-for-profit credit union.

National consumer advocates backing the program include authors Denise Richardson, Give Me Back My Credit and Bob Manning PhD, author of Credit Card Nation. "This program works because not-for-profit credit unions have lower credit card rates than for-profit banks and none have default rates in the twenties like banks," said Richardson "When you transfer your debt to a credit union, more of your monthly payment is applied to reducing the debt and less to cover a high interest rate."

Credit unions can't charge the high interest rates that banks are imposing on consumers. "The NCUA is responsible for enforcing an 18% interest rate ceiling, which is in the Federal Credit Union Act and applies to all federally chartered credit unions," said John McKechnie, spokesman for the National Credit Union Administration.

"Families across America deserve better than predatory banking practices like these sky high default rates," said Ball-Brown. "We don't even have a default rate and never will.  Our credit union exists to help people as a service organization, not to maximize profits.

For more info on the American Debt Relief Challenge visit adrchallenge.org. 

For more on the American Debt Relief Challenge  contact Jamie Chase at 253-732-4369. 

And see earlier blog: Stick it to the Credit Card Companies. Here's How! .