Some cards' rates aren't really 'fixed'

By Michelle Singetary

Some cards' rates aren't really 'fixed'

"Are you nutso?"

That was the question from a reader. He thought I was wrong to advise a young woman not to transfer $13,000 of student loan debt to a credit card offering a very low interest rate.

But I'm not nuts, just realistic. I recommended that the woman with the student loan debt not do it because those low-interest-rate cards come with too many loopholes that allow a credit card company to hike the rate even if you sneeze wrong.

Actually, to the dismay of some, you can do everything right and still have your credit card rate increased.

In fact, Minnesota Attorney General Mike Hatch is going after one giant credit card company for what he says is a deliberate attempt to mislead people into signing up for what they think are permanently fixed-rate credit cards.

In a lawsuit filed recently against two subsidiaries of Capital One Financial Corp., Hatch alleges that the company uses false, deceptive and misleading television advertisements, direct-mail solicitations, and customer service telephone scripts to market credit cards with allegedly "fixed" interest rates.

Capital One said in a statement that it has done nothing wrong.

However, what many consumers don't understand is that the word "fixed" in the credit card world isn't the same as for example a 30-year "fixed" mortgage loan. Now that's fixed. You can pay your mortgage late or not at all and still your rate will be the same. You might get kicked out of your house or ruin your credit rating, but you won't get kicked up to a higher interest rate.

Not so with credit cards. A fixed credit card rate can be changed.

Hatch's suit alleges that consumers are not adequately informed of what can happen with a low-interest-rate card, and cites case histories from several Minnesota cardholders. Here are some examples outlined in the lawsuit:

• Nicole Bourgeois of Zimmerman, Minn., opened a credit card account with Capital One in July 2003. Bourgeois had seen a Capital One television ad offering low, fixed-rate credit cards. Bourgeois received a card with a rate of 4.9 percent. But nearly a year after having the card the rate was increased to more than 14 percent. Capital One told her that the increase was the result of one late payment.

• Robert Stein of Walker, Minn., said he found the prospect of a low fixed-rate card very appealing. He believed that the term "low fixed rate" meant that the interest rate would stay at 4.9 percent for as long as he had the card. However, Stein noticed one month that his rate had increased to 6.9 percent. Why? He was told his interest rate rose because his payment was received two days late.

• Betty Ramsland, of Duluth, Minn., obtained a Capital One credit card in 2002 with a fixed rate of 8.9 percent. Two years later, Ramsland's rate was increased to 14.95 percent. Ramsland said in the lawsuit she asked the company why her rate was increased but didn't receive an explanation.

Sure, some people move around debt from one low-interest credit card to the next with no problem. But you're nuts to believe a promise of a forever fixed-rate credit card. Maybe it will stay fixed. Maybe it won't.

Michelle Singletary writes for the Washington Post