Did Chase pull a credit card bait and switch?

Until recently, Brian Woods of Akron, Ohio was a happy Chase Bank customer. Several years ago he accepted a promotional offer to use the bank’s “Lower than Prime” balance transfer checks to move high interest debt to his Chase credit card. The Chase solicitation promised: “No tricks. No gimmicks. Just savings.”

The offer was straightforward. Woods would pay a 3 percent transfer fee and get an amazingly low interest rate of 3.99 percent APR “until the balance is paid off.” Woods says he paid “on time, every time” in order to keep that interest rate.

Woods became an angry Chase customer when he received his January statement and saw a $10 “monthly service charge” had been added. The bank also bumped up his monthly minimum from 2 percent to 5 percent sending his payment from $140 to $300.

“I’ve seen banks do screwy things before, but this was the most blatant breach of contract I’ve seen a bank do,” he says.

Woods called Chase customer service and was told the bank would drop the monthly fee and return the minimum payment to 2 percentif he agreed to a new interest rate of 7.99 percent for a year. After that, he was told, the rate could go even higher.

“I said no, that’s blackmail, I’m not doing it,” Woods tells me. He got off the phone and contacted a lawyer.

This was not an isolated case. Last November, Chase notified about 400,000 people with these low interest cards their minimum monthly payment would more than double and a $10 monthly service fee would be added.

“I have never seen a credit card practice this abusive,” says Joe Ridout with Consumer Action, the San Francisco-based advocacy group. “The people who accepted this offer were those who really read the fine print. They understood the fine print. Then Chase went and erased the fine print and wrote some new fine print that was very advantageous to the bank and lets them gouge their cardholders.”

Class-action lawsuit filed
Earlier this year, Woods and another unhappy customer filed a class-action lawsuit against Chase. The suit claims Chase engages in “unlawful, unfair, and fraudulent business acts and practices.” It also alleges the bank violated the federal Truth-in-Lending Act.

The suit blasts Chase for “taking advantage of its customers, many of who are suffering extreme economic hardship by essentially ‘welching’ on its promise …”

All credit card issuers, including Chase, have provisions in their member agreements giving them the right to change the terms at anytime for any reason. The lawsuit argues this language does not allow Chase to change “the main terms” of the contract – a fixed rate for the life of the loan as long as you are a customer in good standing.

Attorney Jason Solotaroff who’s working on the class action lawsuit says his clients, Chase customers, were never told a fee could be added.

Why did Chase do this?
Chase will not comment on a pending lawsuit, but the company e-mailed me a statement. “Tens of millions of Chase customers have taken advantage of our promotional low rate financing over the last five years,” writes Stephanie Jackson, first vice president for public affairs.

“Most of these loans have been paid back in less than 24 months. However, there have been a small percentage of customers that have made little progress in paying down these loans. Our desire is to have these loans repaid in a reasonable period of time.”

Gayle Orner of Corvallis, Ore., doesn’t buy the bank’s explanation. Orner tells me she paid off more than 40 percent of her $25,000 balance over two years. And yet, in January her minimum payment jumped from $300 to $500 a month. “That’s a lot to stomach,” she says.

Orner, a medical researcher at Oregon State University, called Chase before accepting their balance transfer offer and asked what was required to insure the rate would not change. “And they said, ‘as long as you make the payments on time and don’t go over the credit limit, that rate is the rate you will have for the life of the loan.’ Period. No exceptions.”

Rather than switch banks, Orner decided to see if she could handle the higher minimum payments. “It puts me right on the edge to be able to survive month to month,” she tells me. Orner worries she could lose her job this summer. “Not being able to put any money into savings really hurts right now.”

Chase agrees to refund millions
Just last week, under pressure from the New York attorney general’s office, Chase agreed to end the $10 monthly fee and credit the service charges already billed. The bank says it will refund $3.3 million to approximately 300,000 customers.

Attorney General Andrew Cuomo told Chase the $10 a month fee significantly raised the interest rate on these accounts, something he says is prohibited by truth-in-lending laws. Cuomo said the settlement will save cardholders about $22 million dollars during the next 12 months.

The lawyers suing Chase say the bank needs to do more – reset the minimum payment back to 2 percent and reimburse all the customers who were promised a low interest rate (2.99 percent, 3.99 percent or 4.99 percent) and agreed to accept a 7.99 percent interest rate in order to avoid the new monthly service charge and bigger monthly payments.

My two cents
A judge or jury will ultimately decide if Chase violated any laws. Clearly, Attorney General Cuomo believes the bank did.

I have a copy of the solicitation letter Chase sent its customers and it’s very simple and perfectly clear. The bank will not raise the interest rate “for the life of the balance” as long as you are in good standing.

In my book, a deal is a deal, especially when it’s in writing. And you can’t weasel out of it just because you want to make more money.

New rules from the Federal Reserve which go into effect in July of 2010 will prohibit credit card companies from changing terms at any time and for any reason. This case demonstrates why those rules are needed and why Congress should get moving on the to give all of us with a credit card the protection we need sooner than next summer.