Whether or not a new federal bank bailout plan unveiled today spurs lenders to dole out more money, evidence is mounting that the first go-around didn't work. Rather, the credit crunch has worsened.
Despite billions of dollars in bailout funds, banks have tightened lending requirements further since November. Many local small businesses are losing existing lines of credit. And credit card companies are ratcheting up interest rates and finding novel ways to squeeze money from even long-standing, loyal customers.
Just ask David Hannah of St. Petersburg.
Hannah was shocked when his February statement for a JPMorgan Chase MasterCard account arrived in the mail. Chase had tacked on a new monthly service charge of $10 if he wanted to keep the 3.99 percent interest rate he has enjoyed for years. Plus, his monthly minimum payment had risen from 2 percent to 5 percent.
For Hannah, who carries a balance just under $10,000 on the card, that meant his minimum monthly payment more than doubled, from $195 in January to $480 due this month.
"Here I've had A1 credit for 25 years," said Hannah, who stayed current on payments even during a 2½-month layoff last fall from his food service job at St. Petersburg-Clearwater International Airport.
"What's to stop them from going to 10 percent next? We're in the middle of a depression and they're bankrupting Americans."
Chase spokeswoman Gail Hurdis said the change targeted customers who have carried large balances for over two years while making little progress in paying them off. Fewer than half of 1 percent of its customers, or under 400,000 accounts, are affected.
Nonetheless, it's another sign the credit crunch is exacerbating. The Federal Reserve reported last week that nearly 80 percent of domestic banks had tightened lending on commercial real estate loans and 60 percent of banks had tightened standards on credit card and other consumer loans.
For credit card issuers, it's a matter of weeding out potential problem customers and improving their buffeted bottom line. Late payments on U.S. credit cards hit record levels and defaults rose sharply to just below all-time highs last month, according to Fitch Ratings.
In addition to Chase, the roster of credit card companies recently raising rates for select borrowers includes Citigroup, Capital One and American Express.
"They've gotten so burned by the whole mortgage crisis and now the economic downturn," said Bill Hardekopf, who runs the credit card information Web site LowCards.com.
"Any customer of theirs that does anything that shows that the customer is an increased risk to that bank, they are increasing the APR (annual percentage rate) and/or cutting the credit limits of those customers."
Just about anything can trigger credit card companies to change the rules. A dropped credit score. A missed or late payment on the bank's credit card or any other account. Exceeding the credit limit. And, as Hannah discovered, it's even a red flag if you're current but only make the minimum payment for an extended period.
New rules no help at moment
Tacking a $10 monthly service charge onto those long-standing accounts in which the borrower has been making minimum payments is a new twist by Chase, Hardekopf said. He's watching other banks to see if they follow suit.
The Federal Reserve last year adopted new rules that would ban several controversial credit card practices, such as hiking interest rates on customers that have never made a late payment. However, unless Congress acts sooner, those new rules won't go into effect until the middle of 2010.
At least one bank, sensing consumer outrage and a marketing opportunity, has taken the opposite tactic.
Barclaycard, the biggest credit card provider in the United Kingdom, last week said it would freeze interest rates for at least four months. Barclaycard said at least a fourth of its 12 million customers would have the rate they paid on purchases cut between 2.5 percent and 5 percent, while all other customers would have their rates frozen.
"We recognize that 2009 is going to be a difficult year for many people and want to do what we can, when we can, to help our customers," said the firm's chief executive, Antony Jenkins.
Consumers aren't the only ones feeling the credit spigot tighten. At the University of South Florida's Small Business Development Center in Tampa, assistant director Jim Parrish said "things really have gotten tighter" for business owners the past few months.
"The big trend we're seeing is a lot of the banks are calling their lines of credit; the customers are now struggling," Parrish said.
"I've had (small businesses) who were still profitable or maybe losing a little money and had a revolving line of credit for maybe a couple hundred thousand. And the bank isn't wanting to renew it."
For now, many of his clients are still in a holding pattern. They're developing business plans that hinge on how the federal stimulus plan shapes up.
The measure that could have the biggest impact, he said, is raising the Small Business Administration's guaranteed backing on certain types of loans from 85 percent to 95 percent.
"If they do that, then the regional banks that have money to lend but are being cautious because of the economy will probably start lending again," Parrish said. "That would be a big deal."
Getting billions in bailout funds
Some consumers and lawmakers have expressed frustration and outrage that many of the lenders tightening credit are the same ones tapping part of the $700 billion in bailout funds set aside under the Troubled Asset Relief Program.
JPMorgan Chase, for instance, received $25 billion in federal bailout dollars, and the Federal Deposit Insurance Corp. smoothed the way for the bank to acquire the assets of failed Washington Mutual for less than $2 billion.
The irony isn't lost on David Hannah.
On the same day his Chase statement with the higher minimum payment and new fee arrived, another Chase letter came in the mail. As a WaMu account holder, Hannah was being welcomed into the Chase family.
"We look forward to a continued relationship with you," the form letter read.
Jeff Harrington can be reached at firstname.lastname@example.org or (727) 893-8242.