Credit Card Terms and Rates Worsen
Credit Card Companies Still Hiking Rates
Last Friday, CBS News reported the story of a very angry woman in Dallas. She’d just received a letter from Citibank telling her that the interest rate on her credit card was going up to 29.99 percent.
The knowledge that she was far from alone in her plight was of precisely zero consolation to that particular Texan. But it is a fact that half of Americans say that their credit card rates have been raised recently.
And one industry observer told the CBS reporter: “The reign of terror continues. They’re doing what they’re doing because they can.”
Credit Card Regulation May Help…
As of February, that will no longer be the case. The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the Credit CARD Act) became law on May 22. But legislators very kindly gave credit card companies until February 2010 to comply fully. The lawmakers thought that they were giving the card issuers an opportunity to make the necessary amendments to their processes and computer systems.
Unfortunately, the credit card companies saw the grace period as a chance to protect their profits by hiking their rates, and changing credit card terms, and conditions.
…But Not as Much as Intended
Although the unreasonable increasing of credit card rates will be outlawed from February, some of the changes to terms and conditions during the grace period will considerably lessen the act’s protections. In fact, most card holders are likely to see rate rises after that date.
That’s because card issuers have switched most of their customers from fixed-rate deals to variable-rates. And it’s increasingly difficult to get a new fixed-rate card. According to Mintel, only six percent of credit card companies‘ mailings in the third quarter of 2009 offered variable rates, down from 27 percent for the same period in 2008.
All this means that when the prime rate goes up, so will the huge majority of credit card rates.
Credit Card Rates Bound to Rise
At the moment, the prime rate is at 3.25 percent, which is an all-time low. So the potential for it to drop further is very limited, while the likelihood of it going up–at least in the medium and long term–is extremely high. In fact, it’s pretty much a certainty.
Worse, some card issuers have rigged the rules by saying that “variable” can only mean “vary upward”–at least from the current base. What they’ve done is impose a floor on their credit card rates, saying that they can go up from where they are now in line with the prime rate. But they can never be lower than they are today.
So all most card holders can do is grit their teeth until February and pray that the prime rate stays low.
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