WaMu Cardholders Beware

Posted by: kvan in Untagged  on Jan 21, 2009



Washington Mutual was the 6th largest US bank when it went under in September. JP Morgan Chase bought the assets which included the WaMu credit card business. I have used my WaMu card only for balance transfer offers, which have been fairly beneficial for me. Today, I received a letter from Chase outlining the new rules as Chase absorbs the WaMu credit card business. I see nothing but downside in the new terms. If you have a WaMu card, you can probably expect the same. Some of the highlights:

  1. Balance transfer fees are a straight 3% with no cap. WaMu had a $150 cap. As part of my credit card arbitrage strategy, I moved about $13000 in debt to my WaMu card with a 1.87% interest rate. My fee was capped at $150 dollars. Under the new rules, a transfer like this would incur a $390 fee.
  2. Chase prohibits balance transfer and check-writing between accounts. I have a Chase card that I use for daily expenses, which I pay off every month. This rule would prohibit my using a balance transfer between these accounts. I don't have plans to do this anyway, but it might affect some people.
  3. The new rules explicitly state that Chase can change the terms at any time for any reason: "At our discretion, we may increase, reduce, or cancel your credit line". This unfriendly clause is a main reason credit card company's finally triggered congress and the Federal Reserve to act, though none of the consumer protection actions take affect for quite a while.
  4. The new terms also explicitly state that Chase will apply payments in a manner which most benefits them. As I've discussed in the past, this is a common predatory practice where your payments pay down any low-interest balance, preserving any high interest balance to grow fees as much as legally possible. Of course, this is opposite of what you want. You want to pay off high interest debt first, not low interest debt. This feature also will be changed by Federal Reserve rules, and the congressional Credit Cardholders Bill of Rights, if and when passed. Unfortunately, it will be a while before any new regulation or law changes this.
  5. Minimum payment will be $10. Or if your balance owed is less than $10, then entire balance is due. I'm not sure what my minimum was before, if any. It is actually a good thing that there is a minimum, to avoid extremely small required payments dragging on month after month.
  6. Chase also is changing fixed interest rates to variable interest, tied to the prime rate. If you carry a purchase balance, this will likely affect you. For me, the variable rate on my card is so outrageously high, that I don't even consider using this card for anything other than a beneficial balance transfer offer. My purchase rate is going to be prime rate plus 26.99%, currently resulting in a 30.24%!!!. Wow!

Chase is letting me opt out of the changes, by closing the account. In that case, I'm allowed to continue payments under the current terms, including my special 1.87% rate until that expires. I feel like I'm winning the battle with this card, as I've exploited it a couple times for low-interest balance transfer offers. I can't help but wonder if they're hoping I just close the account. They must have some grading system, and I'm sure I'm a failure on the customer profitability scale in their eyes. I'm somewhat anticipating that they'll reduce or eliminate my credit limit at some point to get rid of me. Until then, I'll keep the account open, to preserve my credit limit, which helps my FICO score. Closing an account would increase my debt compared to available credit, reducing my FICO score. So, I'll stay the course until my low interest rate expires, then look to transfer the remaining balance to another low interest rate card. I have an outstanding offer with Bank of America, currently at 3.99% and a $30 transfer fee. Afterwards, I'll leave the WaMu account open, and wait to see if Chase comes up with any other attractive balance transfer deals in the future.