In Depth April 30, 2009, 5:00PM EST

About That New, "Friendly" Consumer Contract

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Shifting credit-card fees and payment terms are one of the most widespread causes of consumer angst. In September 2006, Robert J. Lahm Jr., juggling student loans and medical bills resulting from the premature births of two children, transferred $20,250 in high-interest card debt to a new card offered by Chase. The bank's pitch promised a 3.99% fixed rate "until the balance is paid in full." Lahm, an associate professor of entrepreneurship at Western Carolina University in Cullowhee, N.C., paid down the debt to $11,500 over 2 1/2 years. He says he never had a late payment.

In December he received a letter from Chase stating that he would be charged a new $10 monthly service fee and that his minimum payment would rise from 2% of the balance to 5%. "I literally became sick to my stomach," Lahm says. The change meant his minimum payment would increase from $240 per month to $550. Lahm says he dipped into a retirement account to pay the higher bill. "With the credit-card industry playing hardball," he says, "it is an issue that affects all of us." He has started a Web site on the topic: www.changeinterms.com.

Since Chase's new payment requirements and fees took effect in January, consumers in five states—California, Hawaii, Illinois, Ohio, and Oregon—have filed 13 lawsuits seeking class-action status that allege the bank breached its card contracts. The company is battling the suits and says it has acted properly. In a statement, spokeswoman Stephanie Jacobson says changing the terms of card agreements is necessary to make credit "readily accessible to consumers....Creditors need the ability to reprice accounts based on changed circumstances, including changes to the creditworthiness of the consumer." She adds: "Other factors that are reflected in pricing decisions include market conditions, current and future legislative and regulatory changes, and issuers' costs."

CHASE'S $4.4 MILLION REFUND

The abrupt changes have turned into a public-relations challenge for Chase. On Mar. 26, Chase told BusinessWeek that it planned to end the $10 monthly service fee "based on customer feedback." Four days later, New York Attorney General Andrew Cuomo announced an agreement under which the bank will cancel the monthly $10 service fee and refund an estimated $4.4 million to consumers. Chase didn't admit any wrongdoing and says there were "no negotiations" with Cuomo's office.

Still facing the private consumer lawsuits, Chase appears to be retreating from the higher 5% minimum payment as well. In a Mar. 19 letter, the bank told Lahm his 2% rate would be reinstated. Jacobson, the Chase spokeswoman, says: "In reviewing impacted accounts, we discovered that some customers were incorrectly sent a change-in-terms notice this past November. We have taken action to correct the terms on these accounts." The bank wouldn't comment on how the errors occurred or how many customers were affected.

Chase's attempts to change rates aren't unusual. Nine out of ten credit cards allow the issuer to raise rates at any time by changing the account agreement, according to a study of 400 cards by the Pew Charitable Trusts. Intended to galvanize congressional action, the Pew report also found that three-quarters of the cards allowed cancellation of a low promotional interest rate after one late payment.