Written by Janet
Credit card companies are racing to raise rates and tack on extra fees ahead of a law slated to take effect Feb. 22 that is supposed to limit such moves in the future. In some cases, rates are doubling to as high as 30 percent or more, even for people who pay their bills on time.
This card company maneuvering is serving up another blow to American consumers who are already struggling with their finances. U.S. lawmakers let that happen by giving the card companies nine months to prepare for the rules.
The changes required under the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, could go a long way to stop deceptive practices in the card industry. But before that happens, card issuers are grabbing what they can from the millions of Americans who are their customers.
In February of 2010, the CARD Act will prohibit lenders from raising rates on outstanding card balances. In other words, if you have a balance of $1,000 and the company wants to change your rate, it only applies to new purchases. It wouldn’t be retroactive on old debt. Card issuers also won’t be able to change the terms of a contract so long as the cardholder makes a minimum payment on time.
Even though interest rates set by the Federal Reserve are at historic lows – which has let banks and other issuers borrow cheaply – cards have become more costly for Americans, according to research released Wednesday from the Pew Charitable Trusts’ Safe Credit Cards Project.
The nonprofit organization found that credit-card companies boosted interest rates on new cards by an average of 20 percent from January to July. That data doesn’t include increases over the last four months when many lenders stepped up their pace of raising rates and fees. The study reviewed nearly 400 cards offered by the largest 12 U.S. card issuers. It found nearly all contracts still allow banks to raise interest rates on outstanding balances. Card companies also have added or raised fees for things like balance transfers, cash advances and overdraft protection.
The House Financial Services Committee recently introduced legislation to move up the effective date for the credit card law from February to Dec. 1. But Federal Reserve Chairman Ben Bernanke, while acknowledging that change would benefit consumers, rejected the idea. He said it would force the Fed to implement provisions of the new law without adequate public comment and could lead to “unintended consequences.”
There have been bills introduced in both the House and Senate to immediately freeze interest rates on existing balances for the estimated 700 million credit cards in circulation.
