Laws on Credit Card Interest Increases
An increase in your credit card interest rate can throw your financial plans into turmoil. When budgeting, you should be able to predict your borrowing costs and how long it will take you to clear your debts. To limit the unpredictability of credit card costs, the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or the CARD Act, restricts the manner and circumstances in which credit card lenders can impose rate increases.
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New Accounts
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If you opened your credit card account within the last 12 months, your lender cannot increase the annual percentage rate (APR) unless particular circumstances apply. Your lender can, without notice, increase the rate charged on new and existing balances if your card rate is tied to an index that has increased, if you are more than 60 days late in making a payment or if a promotional rate expires and the APR reverts to the previously disclosed standard rate. The lender can also increase the rate without notice if you have failed to keep to the terms of a hardship agreement.
Established Accounts
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When your account is more than a year old, your lender can still increase the APR without notice if a linked rate applies, if a promotional period comes to an end, if your payment is 60 days late or if you breach the terms of a hardship agreement. In addition, your lender may notify you of a rate increase following an evaluation of either your credit standing or prevailing market conditions. In these circumstances, the rate increase cannot apply to existing balances and is restricted to any new charges you make. The lender must provide 45 days notice of the intended change and, on receipt of the notice, you may choose to opt out of the increase by closing your account; in this case, your lender may double your minimum payment amount or schedule payments to clear your balance over five years.
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Rate Reviews
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If your APR increases because of late payments, your account must revert back to the original rate once you have made six consecutive payments on time. When a rate is increased following an evaluation of your credit standing or changing market conditions, the lender must review the position every six months to determine whether a rate reduction is appropriate. If the lender decides to reduce the rate, it must do so within 45 days of the review.
Considerations
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The CARD Act further protects borrowers by stipulating that lenders must advise customers of the reason for any rate increase. If you have a good payment record and a sound credit history, you may be able to negotiate and retain your current rate. To facilitate negotiation, order your free annual credit reports and buy your credit scores from the three main credit reporting organizations, Experian, TransUnion and Equifax.
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References
- The White House; Reforms to Protect American Credit Card Holders; Office of the Press Secretary; May 2009
- Board of Governors of the Federal Reserve System; New Credit Card Rules Effective Feb.22; March 2010
- Bankrate.com; 8 Major Benefits of New Credit Card Law; Leslie McFadden; August 2009
- Board of Governors of the Federal Reserve System; New Credit Card Rules Effective Aug.22; June 2010
Resources
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