Skip to main content



) -- The country's biggest lenders may pledge not to hike credit-card rates to build political capital, but the strategy isn't that big of a deal business-wise.

Bank of America

(BAC) - Get Bank of America Corp Report

said Tuesday it wouldn't raise base interest rates and fees ahead of a consumer-protection law that's set to go into effect in February. On the face of it, Bank of America's pledge seems to be risky and bold, but it's not. The Charlotte, N.C.-based behemoth already reinforced its risk walls by raising rates earlier in the year and is leaving loopholes to protect itself against troubled consumers and broad shifts in interest-rate policy.

Still, BofA's moot-point promise is sure to please Congress, which is the main goal. It won't be surprising if the bank's announcement is soon followed by similar statements from credit-card competitors like

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. Report



(C) - Get Citigroup Inc. Report


Wells Fargo

(WFC) - Get Wells Fargo & Company Report


TheStreet Recommends

American Express

(AXP) - Get American Express Company Report


Discover Financial Services

(DFS) - Get Discover Financial Services Report

, and

Capital One

(COF) - Get Capital One Financial Corporation Report

that don't want to lose their standing in Washington.

But Bank of America lifted interest rates in recent months to reflect a worsened credit environment. So did just about every other lender. All told, U.S. banks lifted rates by 200 basis points to a median of 11.99%, with

profits on such debt

up by nearly half, according to the Pew Safe Credit Cards Project.

It's also worth pointing out that economists generally believe that the recession is over. While unemployment remains a concern, if the country is at or near the trough of the economic cycle, the worst of the risk environment already has passed and there's little need to raise rates again. Though banks are assailed for credit-card tactics, they also want to remain competitive.

Arbitrarily raising rates as the economy gets better -- and others lower them or keep them stable -- would hurt BofA's position with the consumer. Its economists believe unemployment will top out within five months, just after credit-card reforms passed by lawmakers go into effect on Feb. 1.

Furthermore, its pledge means nothing toward the majority of credit cards, which are variable-rate. It applies only to fixed-rate cards, most of which were forcibly changed to variable-rate this year to protect bank profits amid a wave of defaults. That means if the prime rate -- typically the

Federal Reserve's

fed funds rate target -- is raised rates will go up in tandem.

BofA's economists call this a "distant concern" in a report last week, but the


is expected to alter its "free money" interest-rate policy within the year.

Perhaps the most important loophole to the pledge is that it doesn't apply to consumers who are delinquent -- late on at least two payments within a year -- making it appear as though lawmakers are the only people getting a free ride from this announcement.


Written by Lauren Tara LaCapra in New York