Thursday, July 9, 2009


Credit Card Interest Rates Rising Ahead of Rule Changes

There are about six weeks left before some provisions of the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act go into effect. The federal legislation was sponsored by U.S. Sen. Christopher Dodd, D-Conn., and signed by President Barack Obama in May.

One of the key regulations to kick in Aug. 20 applies to interest rate hikes. Credit card issuers will then be required to give consumers 45 days notice before going up on rates, a substantial increase from the 15 days required now.

Bill Hardekopf, chief executive officer of, said the 45-day mandate will give approximately two cycles' worth of time for consumers to shop around and change cards if they desire.

This may be small comfort to the many cardholders who have experienced interest rate hikes over the past year, as issuers seem to be raising rates before new rules are implemented, he said.
"Issuers realized that change was coming and they have raised rates, cut limits and changed practices quickly and frequently in advance of the regulations going into effect, just as they said they would do," said Hardekopf, also author of The Credit Card Guidebook.

As of Aug. 20, credit card companies also must start mailing or delivering periodic statements 21 days or more before the payment due date in order to charge a late fee. reviewed some of the practices that credit card companies have initiated in advance of the new law.

One of the "harshest" changes reported by was recently announced by JP Morgan Chase, increasing the minimum payment percentage from 2% to 5% for some cardholders, which more than doubles their monthly payment.

For example, if the balance is $8,000, then the minimum payment at 2% is $160. The payment jumps to $400 at 5%.

While a higher minimum payment forces cardholders to pay off their debt faster and thus saves them money in the long run, this increase could make the minimum payment unaffordable for some consumers and could damage their credit scores.

"If this is effective and reduces risk for one issuer, expect other issuers to follow," Hardekopf said.

Dodd, who is chairman of the Senate Banking Committee, on Thursday sent a letter to the heads of key regulatory agencies directing them to write and enforce robust rules requiring credit card companies to review rate increases imposed on their customers since January 1st of this year.

Most of the provisions of the CARD Act take effect after Jan. 1, 2010. Among other changes, the law bans practices such as universal default and sets parameters on the issuance of cards to college students.

Here are some other changes, already implemented by card companies, noted by
* Simmons Visa Platinum is moving from a fixed rate to a variable rate. The current annual percentage rate or APR will remain at 7.25%, but it will now be variable. In addition, Simmons is moving from an 8.95% fixed rate to a 9.25% variable rate. Both changes take effect today, July 10.
* IberiaBank has received attention for having one of the lowest rates available. However, the bank raised its low rate from 6.25% to 8.25%, effective June 26.
* Bank of America increased the balance transfer fee from 3% to 4% on June 1.
* Chase increased its balance transfer fee and cash advance fee to 5% effective in August. Both fees are the highest in the industry.
* Both Bank of America and Chase announced that they will be moving a number of their cards from fixed rates to variable rates.
* At the beginning of June, Chase restructured its rewards program. It launched the Ultimate Rewards, a program where cardholders earn one point per $1 spent, with no earnings cap or expiration date.

This will replace versions of its Freedom card, some of which have offered more generous cash-back rewards and bonus opportunities. The Freedom cardholders who want to keep a fixed 3% bonus for spending in grocery, gas and fast-food categories, will pay a $30 annual fee for the card.

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