Consumers who got low-rate credit cards during recent years of cheap cash may be about to see their borrowing costs spike.
Pam Girardo, a spokeswoman with
Capital One Financial
, confirmed Friday that the company was sending out notifications to a swath of customers that their rates would soon go higher.
For instance, a cardholder with access to credit at an annual interest rate of 4.99% will soon have to pay 13.9%. Girardo declined to say how many customers were receiving notifications, but she did say it is "not a majority."
The news comes as a spike in mortgage defaults in the U.S. has caused heavy and unexpected losses for a number of financial institutions and hedge funds. With financial markets reassessing risk, credit has dried up, causing turmoil in stock markets around the world.
Investors are concerned that the credit crunch may cause a slowdown in consumer spending, which could have an adverse effect on U.S. economic growth.
"Cheap credit that was available up until two weeks ago is disappearing, and that's going to hurt consumers" says Paul Mendelsohn, chief investment strategist with Windham Financial Services. "Capitol One isn't raising interest rates because rates are cheap. They're looking at their risk threshold and saying, 'Hey, we need more of a cushion here in case these people default.'"
Girardo says the changes in terms are "standard practice" for the credit card industry and are not related to the credit issues that are weighing on the stock market now. Customers receiving the notification will have a window of time to pay off their balance at their existing terms before their interest rate will go up.
"We want to be really up front with our customers that this is in the works," she says.
Capital One recently said the profitability of its troubled mortgage unit stabilized in the second quarter, but the McLean, Va.-based lender is in the process of cutting about 2,000 jobs across the company.
Its shares were recently up 2 cents to $68.02.