1998 Survey Results of Chevy Chase Bank Cardholders

In response to the actions of Chevy Chase Bank, cardholders created an
internet site dedicated to highlighting the problems consumers
experienced with the bank. Included in the site is a survey for
cardholders to complete. The survey asks twenty-one questions ranging
from the interest rates that cardholders were charged to whether they
were unfairly assessed late and overlimit fees. Within one year, 128
people responded to the suvey. Their answers provide a preliminary
outline of Chevy Chase BankÝs conduct.

Several survey questions centered around Chevy Chase BankÝs imposition
of high interest rates and fees.

* When asked what their current interest rate was, of the 121 people who
answered the question, half (60) responded that their rate was higher
than 24%, the maximum rate allowed under their Maryland cardmember
agreement. Two respondents reported that their rates were 30% or
higher.

* One problematic result of Chevy Chase BankÝs high interest rates is
that they can cause consumersÝ to exceed their credit limits, resulting
in overlimit fees. When asked, ýonce your interest rate was increased
were you ever assessed any overlimit fees?,ţ fifty-seven (57) people
answered yes and thirty-nine (39) answered no, showing that 60%
experienced overlimit fees.

* Another potential result of exorbitant interest rates is minimum
monthly payments on customerÝs statements that are less than the monthly
finance charge, resulting in an increasing balance if the consumer pays
only the minimum amount due. In response to the question, ýis your
minimum payment less than your finance charge?,ţ sixty (60) people
answered yes and thirty (30) people answered no. For two-thirds of all
respondents, making the minimum payment each month will result in
increasing indebtedness.

The imposition of unwarranted late charges, a problem that credit card
consumers in general experience, was also a problem for many Chevy Chase
Bank consumers. When asked, ýwere you assessed unfair late charges on
timely payments?,ţ 73% of respondents to the question answered
affirmatively.

A potentially illegal aspect of Chevy Chase BankÝs rising interest
rates was the bankÝs failure to provide adequate notice to customers
that their rates would be increased. When Chevy Chase Bank claimed that
it was moving its credit card operations from Maryland to Virginia, it
was required by law to provide advance notice of the change in its
updated cardmember agreements. As dicussed previously, the amended
agreements Chevy Chase Bank sent out did not comply with Maryland law.
In addition, most survey repsondents reported that they did not receive
the change in terms.

* When asked ýDid you receive new terms and conditions prior to changes
in your interest rate?,ţ eighty-nine (89) people said no and only twelve
(12) said yes.

* In addition, before raising the interest rates on customer accounts,
Chevy Chase Bank was required to inform consumers of the upcoming
change. However, eighty-six (86) survey respondents report that they
did not receive prior notice and only ninteen (19) report receiving such
notices. The fact that a small portion of consumers received notice
might result from the fact that Chevy Chase BankÝs regulator, OTS,
eventually reminded the bank of its obligation to provide such notices,
and the bank may have eventually complied.

One of the most frustrating aspects of Chevy ChaseÝs raising of
cardholderÝs interest rates, was the bankÝs blanket statement that the
increases were triggered by the cardholdersÝ credit reports, which
showed the cardholders to be ýat riskţ for default. However,
respondents answers to questions regarding their credit status challenge
the bankÝs logic. When asked to select the most accurate description of
their credit profile, survey repsondents answered as follows

* six (6) stated that they have ýbad credit;ţ
* seven (7) responded that ýthey do not knowţ their credit status;
* thirty-three (33) admitted to making ýa few late payments;ţ
* nine (9) responded that they ýhad been fraudulently labeled late
payers;ţ
* eleven (11) responded that their status could best be described as
ýother;ţ and
* forty-three (43) repsonded that their credit status was ýperfect.ţ

In brief, thirty-nine (39) people responded that their credit had
negative marks (rangning from minor to major), and fifty-one (51)
responded that their credit is, or should be, considered perfect.

Of course, these self-assessments may not be completely accurate, and
may not accord with the measurements that banks apply to credit reports
to determine risks. Yet, it would be reasonable to assume that those
cardholders who reported that there are definite problems with their
credit profiles would receive higher penalty rates as a reflection of
the greater risk they pose to the bank. This is not the case. Each
category of credit status reported by cardholders resulted in an
equivalent spread of interest rates as follows:

* consumers who self-identified as having ýbad creditţ received interest
rates ranging from 22% or less to 27%;
* consumers who responded ýdonÝt knowţ received interest rates from 22%
or less to 29%;
* consumers who reported ýmaking a few late paymentsţ received rates
from 22% or less to 28%;
* consumers who identified as being ýfruadulently labeled late payersţ
received rates from 22% or less to 30% or higher;
* consumers who identified as ýotherţ received rates ranging from 22% or
less to 27%; and
* consumers who identified as having ýperfectţ credit received rates
ranging from 22% or less to 30% or higher.

Interestingly, it is a consumer who reported that they were inaccurately
portrayed as being late payers and another who considered their credit
to be perfect, who received the highest reported rate, 30% or higher.

A more plausible explanation for Chevy Chase BankÝs imposition of high
interest rates on consumers is that fact that these consumers carried a
significant amount of debt. In essence, Chevy Chase Bank considered
carholders to be a reasonable risk, and extended thousands of dollars in
credit to these consumers. However, after these consumers utilized this
credit extension, creating balances of several thousand dollars, Chevy
Chase Bank suddenly labelled them a risk, and increased their interest
rate -- an action that will lead to enormous revenues for the bank.
Survey repsonses lend support to this interpretation. The average
balance reported by repsondents was $6,180, a significant sum. The
median balance was similar, $6,000.

While the survey results are not definitive, they validate the
complaints that cardholders express regarding Chevy Chase Bank.
Specifically, the survey indicates that Chevy Chase BankÝs reasons for
raising interest rates on accounts are apprently not tied to
cardholdersÝ payment history with the bank. The data support the
suspicions of many cardholders that their interest rates were increased
based on their debt level, or because they belonged to a group of
cardholders who were targeted for rate increases simply to raise
revenues. The survey also indicates that cardholders were targeted for
unfair assessments of penalty fees, particularly late fees.

As credit card profits decline for some banks (while holding steady, or
even increasing, for others), ýpenaltyţ increases in interest charges
will likely be an increasing problem. Card issuers must offer
competitive rates in order to lure in new cardholders. Yet, these
competitive rates do not generate as much profit as the standard rate
issuers charge, often 18% or higher. In order to boost profits,
unscrupulous card issuers will try to raise interest rates in
contradiction to initial offers or for questionable reasons. Card
issuing banks are creating two tiers of customers: those that they try
to attract and retain through low interest rates and those customers who
are charged excessive rates in order to boost the bankÝs profits. The
issuers who violate agreements through rate increases will count on the
fact that credit card statements are hard to read and many consumers may
not keep track of the number of months that they are entitled to a
lower, introductory rate, or will not notice if they do not receive
proper notification of a rate increase.


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