Credit Card Companies Race to Beat New Law
In a push to beat the new federal regulations, credit card companies across the nation are sending out notices to their customers that their interest rates will be increasing. The Credit Card Accountability, Responsibility and Disclosure Act, passed in May, takes full effect next year. One provision of this act prohibits credit card companies from increasing interest rates on fixed rate cards for reasons other than a cardholder being late 60 days or more on making a payment. To counter that restriction, many credit card companies are now sending out notices to their customers that their interest rates will be increased – often up to 30% – and without any late payments or negative history on the customer’s account.
These interest rate increases directly contradict Congress’ explicit desire to end deceptive credit card practices. In a letter to the Chairman of the Senate Committee on Banking, Housing and Urban Affairs, Bank of America, pledged not to increase the interest rates of its customers prior to the effective date of the Act. Congress responded quickly, and issued a press release calling on all credit card companies to follow Bank of America’s example. “This Congress has made it clear that abusive credit card practices are no longer acceptable.” Clearly, not all credit card companies have heeded Congress’ request, as the Chairman recently introduced new legislature seeking to freeze rates on existing credit cards until the Act becomes effective.
Under the Act, a consumer has the right to refuse such an increase, but exercising such a right may negatively impact their credit score. A portion of the Act went into effect in August, 2009, and requires the credit card companies to give 45 days notice of an increased rate, and provides the consumer the right to opt out of the rate increase. The problem with opting out of the interest rate increase, however, is that even though the consumer will be able to pay off the balance at the present interest rate, they are no longer able to use that credit card anymore for purchases or cash advances. This can affect the consumer’s credit score as they now appear to have more debt and less available credit.