Credit Cards Overview
Interest Rate Hikes
0% APR offers from credit card issuers are not what they seem -- typically your rate will increase after 6 months. And your rate could go up even more if you increase your balance on another account. Even worse, if you are late making a monthly payment, your rate could climb to 30%!
Want to see the impact? Take a hike up Mount Debtmore.
Out with the Old, In with the New
2010 Brings Meaningful, Pro-Consumer Reform to the Credit Card Industry
On January 12, the Federal Reserve Board announced a final rule amending Regulation Z (Truth in Lending) that bolsters the 2009 Credit CARD Act. This rule's adoption means billions in consumer savings annually. CRL's Dodging Reform report spotlighted two hidden and deceptive practices included in the rule, "pick-a-rate" and variable rate floors.
In Dodging Reform, CRL coined the term pick-a-rate for an increasingly popular industry pricing scheme. The practice offers issuers their pick of the highest prime rate over a 3-months instead of current prime to decide a customer's variable rate. Prime can change significantly in a short time so the practice can hike unaware cardholder's costs greatly. The end of pick-a-rate will save Americans up to $2.5 billion.
The abusive nature of variable rates floors results in a rate so rigged it never goes down… only up from its starting level. While the prime rate is low now, this practice might have cost consumers billions when prime returns to a more normal level.
Under the new rules, which go into effect February 22, 2010:
- Banks will no longer be able to raise borrowers' rates on existing balances unless it is to move a variable in line with an index or the consumer becomes 60 days late on their bill. If your rate is increased because you were 60 days late, you should be notified that you can return to the regular rate if you pay the minimum payment on time for 6 months.
- Banks will need to start applying payments above the minimum to the highest rate first, the opposite of current tactics. None of the top banks have made this change yet, but they must soon.
- Banks will not be able to charge an over-limit fee unless a consumer "opts-in" to receiving such a fee. Already some issuers have generated misleading calls to get consumers to opt-in. Borrowers beware – be careful not to accidentally do this.
