Consumers charging their way through the holidays could find themselves in a painful predicament when the merriment ends and it's time for repayment.
A growing number of consumers are finding themselves faced with higher credit card interest rates and fees, and lowered credit limits, as banks try to drastically cut costs and limit lending risk.
Many credit cardholders may already have or will be receiving notices they will be charged higher interest rates and fees on outstanding balances. American Express, Bank of America, Citibank, JP Morgan Chase and Wells Fargo are among banks increasing interest rates and/or fees on at least some of their cardholders deemed at risk for repayment.
"It's obvious already from the record number of calls we're getting that consumers are feeling the impact of tighter credit, and when combined with job losses, it's forcing many, many people over the edge," said Michael Sullivan, director of education at Take Charge America, a Valley-based, nonprofit credit counseling agency.
"The credit crunch for consumers is probably really just getting under way now and, as banks tighten things, it will get worse."
Small retailers expect to feel a pinch this holiday season as wary consumers cut back on spending and shy away from using credit cards.
"We've already seen a reduction in sales and holiday business isn't as good as it was last year, which wasn't a great year," said Paul J. Buza, manager at the Tinder Box tobacco shop near Fiesta Mall in Mesa. "The majority of our sales are credit card sales, and if people are cutting back ... I'm sure it will affect my bottom line. I'll manage, but at the same time it is worrisome."
Kristie Moore, owner of Divaz Boutique at Tempe Marketplace, expects a slight decrease in sales. But, she said, now is a good time for consumers to get back to basics.
"If customers pay off their credit cards and set a monthly cash-shopping budget, they will actually have extra money to spend," she said. "We always encourage debit (cards) at our store. The merchant fees are much lower with debit."
Painful, but necessary
The "challenging economic environment" and increased cost of doing business prompted American Express to raise its regular interest rates by 2 to 3 percentage points on certain groups of cardholders, said spokeswoman Desiree Fish.
It also is raising rates on cash advances, late payments and defaults as well as increasing the charge for transactions involving foreign currency from 2 percent to 2.7 percent.
"For business reasons we are making these pricing changes," Fish said. "We do have programs that provide assistance for cardmembers who are facing financial hardships and we make every effort to work with those customers."
Chase is raising rates on credit card cash advances and the rate it charges when cardholders exceed their limit or pay late. The bank also will start charging a new $10 monthly service fee to some cardholders who have been carrying large balances for at least two years, while raising their monthly minimum payments from 2 percent to 5 percent of the outstanding balance.
"This impacts a very small percentage of accounts," said Elaine Franck, Chase spokeswoman. "Chase is a responsible, careful lender. We constantly evaluate the risks and costs of funding credit card loans. In the challenging economic environment we face today, this takes on added importance."
Chase also may lower credit limits for customers who are showing signs of increased risk or inactivity, she said.
"The customer may be able to share other information, such as salary or other details, that may enable us to increase their credit line," Franck said.
Citibank has been notifying groups of cardholders that it will be raising its regular interest rates by 2 to 3 percentage points. Many internal and external factors are taken into consideration when Wells Fargo changes a cardholder's interest rates, said Marjorie Rice, bank spokeswoman.
"We are constantly evaluating our pricing," she said. "For example, if you're at your limit on several cards, that could indicate that you might be a risk factor. It's totally based on the individual and their credit worthiness, their relationship with us and then risk-based pricing."
Bank of America has tightened underwriting criteria across its credit card portfolio and is taking an "aggressive" look at existing credit card accounts to control risk, said spokesman Jim Pierpoint.
"We definitely take into account both how a customer has performed with us ... and we'll also consider external risk factors, such as taking out numerous loans using substantially all of the credit available to them or defaulting on loans to other lenders."
The bank also is reducing credit limits on some customers based on their risk profile, Pierpoint said.
Experts: Apply the brakes
Those concerned about increased bank fees probably shouldn't be using credit cards at all, Take Charge America's Sullivan said.
"That will eliminate the interest and it will eliminate all of the fear," he said. "Of course, it will also eliminate a lot of the profits to banks, but that's fine. People need to look out for themselves right now."
Sebastian and Pica Niedas, who live in Ahwatukee Foothills, said their solution is to skip credit cards and pay as they go.
"It's hard still because (Sebastian) just got laid off so our budgets are tight, but we just live that way, not on credit," Pica Niedas said. "We had some (credit cards) before, but it ended up hurting us in the end so we just got rid of them."
Living without credit does mean there's less to spend during the holidays, but the couple, who were shopping at Tempe Marketplace last week, plan to focus on ways to celebrate that don't involve money.
"Most of it will be more family tradition-type things than really the big presents under the tree," Pica Niedas said. "We're going to keep it simple. We're going to be doing more things as a family and with the people we know."
Laura Hurtig, a finance and supply chain management major at Arizona State University, said contrary to popular belief, saving, rather than spending, benefits the economy.
"I have a credit card and I use it when I travel ... but I normally pre-pay my credit card so that's how I deal with credit," she said while browsing the mall.
"During the holidays, I'm not spending more than I have. For every dollar I'm spending, I would like to put a dollar in savings this time of year, give myself a gift."