OSPIRG reports credit card APRs artificially high

In a study conducted by the Oregon Student Public Interest Research Group (OSPIRG) more than half of consumers who complained to their credit card companies about their interest rates succeeded in having their rates reduced, on average, by one third.

The nationwide study asked 50 people to call their credit card companies and attempt to have their annual percentage rate (APR) reduced. Fifty-six percent of those who did were successful in reducing their rate from an average of 16 percent to an average of 10.47 percent.

“The most important thing is how easy it is,” said Miriam Gonzales, student intern for OSPIRG. All it takes, according to the report, is a call to your creditors.

“Most people were pretty shocked,” said Steve Dixon, OSPIRG Consumer Advocate, “They would ask, ‘Really? I can do this?'”

Consumers who had consistently paid their bills were most successful in reducing their rates. “That is one of the most important factors in determining whether you can reduce your rate or not,” Gonzales said.

Other factors which affected consumers’ success in reducing their rates included the balance they maintained with the creditor and their history with that creditor.

OSPIRG’s survey found a consumer in New Mexico who had incurred a 31.12 percent penalty rate on her card for a late payment. This rate was reduced to a more reasonable 14.65 percent upon her participation in the study.

What should consumers arm themselves with then, for best results? “Look around for basic introductory offers,” Dixon said, “If you’ve been offered a better rate by a company, you can use that as well.” By using your status as a valued customer, you can usually convince the creditor to adjust your APR.

Some survey participants encountered opposition in their quest, being told that they could not receive a lower APR since their credit card had a “fixed” rate, according to the OSPIRG report, but a “fixed” rate means only the card’s APR doesn’t fluctuate with the prime rate. The credit card company sets the interest rate on a fixed rate card.

Lowering your interest rate is just one step consumers can take against overwhelming credit card bills.

According to OSPIRG, 55 percent of American households carried credit card debt averaging $10,000.

Making the minimum payments, the greater of 2 percent of the balance or $20, on this debt would wind up costing consumers $1,500 in interest in the first year. By increasing the monthly payment consumers can reduce the period of time that they repay the charge, thus reducing the total interest paid.

OSPIRG recommends consumers always pay as much as they can afford on the credit card with the highest APR each month.

Between 1995 and 1999 the credit card industry’s profits increased some 274 percent, from $7.3 billion to $20 billion, according to the testimony of Edward Mierzwinski, consumer program director for the U.S. Public Interest Research Group (USPIRG), before the House Committee on Financial Services. In 2000, fee income accounted for 25 percent of the industry’s total income, between 1995 and 1999 fee income increased by 158 percent, from $8.3 billion to $21.4 billion.

The Federal Reserve has reduced the prime rate 11 times in the past year, according to OSPIRG, yet average credit card rates have remained relatively stable, around 14 percent APR.