Credit union quietly hikes interest rate

By JOE FRIES Thursday, November 6, 2008

Amidst continued turbulence in the financial world, keeping your credit could cost you more, as local resident Doug Beulah has learned. In 2005, the Penticton man took out a $252,000 line of credit with Prospera Credit Union that carried an enviable variable rate of prime minus 0.5 per cent. But as of Nov. 1, despite having paid off three-quarters of the outstanding amount and making the interest payments as required, Prospera jacked up Beulah’s interest rate by a full percentage point to prime plus 0.5 per cent. After receiving a vaguely worded letter informing him of the change, Beulah visited Prospera’s Penticton branch for clarification. He learned that his loan agreement contains a clause allowing the bank to amend the contract as it pleases. So while he understands that business is business, it still hurts. "I’m angry," he said.

When times are good, as they were in 2005, banks fell all over themselves to offer credit, Beulah said, but when things take a turn for the worst, "they turn around and jack up the interest rates." He said people should be on the lookout for a similar hike in whatever variable-rate sources of debt they may hold, regardless of lender. Sundeep Sandhu, Prospera’s vice-president of marketing, said between 1,600 and 1,700 members like Beulah, who had loans with an interest rate "around prime," received a similar notice. Sandhu pinned the source of the rate hike on the indirect fallout of the sub-prime mortgage fiasco, which has since led to tightened credit markets for banks here. Even though "We had no exposure at all to sub-prime," he said, "Who knew that the ripples would be so far-reaching? And it all happened in pretty much the last month and a half."

Although he wouldn’t speak to Beulah’s case specifically, Sandhu said the rate increase is due simply to "market conditions right now. It has nothing to do with the financial institution." Further, in terms of the banking industry as a whole, "everyone has moved their pricing." He explained that as the credit market has tightened, it has cost banks more to borrow -- and, by extension, to lend. Beulah thinks Prospera may have been among the first financial institutions to raise interest rate variances, and similar increases at other banks may not be far behind. He realizes, however, miffed as he may be, that if he were to apply for a new line of credit elsewhere, he’d be hard-pressed to get a similar interest rate, and "I don’t want to shoot myself in the foot."