Rules for Raising Credit Card Rates
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 is intended to protect consumers from excessive fees and rate increases. Yet credit card companies can circumvent the rules included in the legislation under certain circumstances. That's why it's important for consumers to fully understand their credit card agreements to avoid rate hikes that could sink them into deep debt.
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Significance
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Credit card companies that raise cardholders' annual percentage rate (APR) are obligated to tell them why the rate has been increased. The APR is the yearly interest rate applied to cardholders' balances. Each monthly bill a customer receives should show a portion of the annual rate charged, which is known as a periodic rate. Therefore, an APR increase means cardholders are paying more for carrying a balance.
Considerations
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Card issuers must reevaluate an APR increase every six months if the rate was raised on or after Jan. 1, 2009. Yet the required review doesn't guarantee that a credit card company will lower a customer's APR. Rates are decreased only if card issuers find a reduction is appropriate. A rate hike incurred because of a 60-day payment delinquency is an exception. In such cases, card issuers must eliminate the rate increase for customers who make timely payments for six months following the rate hike.
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Prevention
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Cardholders also must be informed 45 days in advance of an increase in interest rates or other credit card fees. Card issuers must give customers the option of canceling their cards before the higher rates take effect. Still, customers who close their accounts to avoid rate increases may be required by their credit card company to make higher monthly payments to quickly pay off their accounts.
Warning
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New customers' rates generally can't be increased for the first 12 months after their credit card accounts are opened. Yet card issuers can void that requirement under certain circumstances. For example, customers whose payments are more than 60 days late can have their rates increased. Companies that offer new customers low introductory rates have to keep those rates in place for six months only. Even so, cardholders should be told in advance what interest rate they'll pay after their introductory offer expires.
Features
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A credit card company that raises a customer's rate a year after an account is opened can apply the higher rate to new charges but not to a balance previously carried on the card. Furthermore, if that customer's payments exceed the minimum monthly payment, the company has to apply the overage to the balance with the highest interest rate.
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References
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