Ticked off by sudden spikes in credit card rates? You're not alone. Congress is on it.
An All Consuming reader writes:
What, if anything, is being done by the AGO to counteract the blatant credit card rate increases to 30 percent (3X original rate) when an overdraft or late is recorded – with no real or viable way to get that reduced?
Now, after perfect payments, (the card issuer) says that because I have a heavy load of credit and not enough income, they cannot reduce the rate. They suggest credit counseling and bankruptcy and other extreme actions when a simple rate/payment reduction would solve the problem.
Is that not counter to logic, truly ramming it to consumers, being very inflexible and adding fuel to the fire? If they do not reduce rate, it could make things worst. I am not asking to get down to the original 11%, but for something lower than 30%.
Citing economic conditions, American Express, Bank of America, Citibank, Capital One, and HSBC are raising rates – and sometimes lowering credit limits – on potentially millions of credit card holders. It can happen to you even if you’ve never missed a payment deadline!
The Wall Street Journal reported last month that Bank of America plans to raise interest rates for as many as 4 million card holders starting with their June statements. Any customer who carries a balance and has an interest rate below 10 percent would see that rate jump into double-digits.
The feds – not states – have jurisdiction over most banks. As I type this, Congress is racing to put new restrictions on card companies.
The New York Times reports that a proposed U.S. Senate bill goes further than its House counterpart and would prohibit companies from raising interest rates on existing balances unless a card holder was 60 days behind, and then would require the rate to be restored to its previous level if payments were on time for six months. Consumers would have to be notified of rate increases 45 days in advance. Companies would not be allowed to charge late fees if they were late in processing a payment. However, the U.S. Senate on Wednesday rejected a proposal to cap interest rates at 15 percent. The bloggers at Credit Slips offer an interesting analysis of the bill.
If your interest rate spikes, the Better Business Bureau suggests you contact your card issuer and try to negotiate a lower rate. If you don’t get anywhere, pay off the account and shop for a better deal elsewhere. Bankrate.com is one site to try.
But think carefully before you close the account. Closing an account – whether it’s done by you or the lender – can have temporary negative impact on your credit score. This is due to what’s called debt utilization – the ratio of your total debt to total credit limit – and it counts for about a third of your credit score. Read Herb Weisbaum’s MSNBC column for an explanation. If it's your oldest account, that can also hurt your score.
As for paying your bills late, that’s the worst thing you can do. So get them in on time. As we mentioned in Monday’s All Consuming blog post, those bills are usually due by 2 pm EST on the deadline date -- although that too could change if this law passes.
What do you think about the proposed Credit Cardholders Bill of Rights? Has your credit card interest rate changed lately?
[UPDATE]: President Obama signed the CARD Act in May 2009. Here are some related blog posts:
Credit card bill: the end of fees or the beginning?
Credit changes filling the mailU.S. House wants to speed up new credit card rules