Capital One got $3.55 billion in TARP funds. Now they are taking their customers to the cleaners - including me.

Like many Capital One customers, I recently received a rather dramatic "change of terms" notice. I actually called Capital One to 1) translate it for me, and 2) loudly complain.

The notice informed me that my relatively low fixed rate accounts were being transformed into variable rate accounts. On my lowest rate card, that means they are jumping from a 7.9% fixed rate to a 17.9% variable rate on purchases - 24.9% on cash advances, and 29.4% default rate - all variable - (and we've been upset about the payday loan folks). The basic rate change goes into effect in February 2010 (for me) with the other changes taking effect immediately. The only positive news here is they are giving me essentially a one year warning to pay off any outstanding balances on my Capital One cards. Unfortunately, this is a time when many people are using their credit to keep housed and fed, or meet emergency needs (medical bills, fix the busted refrigerator, etc).

While I am personally ticked off at them treating me this way (and other C1 customers feel the same way) there is a bigger impact.

The Congress has passed, and President Obama signed, the "stimulus package." As reiterated by Obama, one of the goals is to get the credit markets flowing again for businesses and people. After all, we are told that "the flow of credit is the lifeblood of our economy" (Obama speech to Congress 2/24/09). The message from Capital One is that "You had better not use your credit card for any major purchases - or pay through the nose for them."

A bit of a mixed message I would say.

It makes me angry that Capital One got $3.5 billion that we are on the hook for, and then pulls a trick like this. The 2010 date would seem to indicate that they are not anticipating a rapid economic recovery. Or perhaps, they are aiming at squeezing their customers.

Capital One, and other credit companies, have been pulling back credit - namely closing customer accounts. The rate jump strategy by Capital One may, in part, be an attempt to get angry customers to cancel their accounts. Decreasing accounts allows companies to have less outstanding potential debt on their books.

However the strategy of either pulling back credit, or customer's canceling their cards in anger, is that while it may "help" the credit companies it damages the credit customers. One's credit rating is significantly based upon the total amount of credit one has available and the amount of credit one is using. If you decrease the amount of credit available, it raises the debt ratio - thereby lowering the credit score. Since getting major loans is based upon one's credit score, people attempting to buy a major item (home, or car for example) are going to face problems - or increased interest rates.

What is happening here is that Capital One (and other credit companies) are working at cross purposes to attempts to stabilize and improve the economy. It is the credit card version of the banks taking TARP funds and not putting them towards either addressing the mortgage situation or "loosening" credit.

I do believe we need some more stipulations on the recipients of those TARP funds.

Note: In 2007-2008 Capital One paid $700,161 in campaign contributions and $1,132,000 in lobbying funds. The $3.55 billion was a 193944% return on investment (Open Secrets).