If you’ve noticed your credit card APRs rising, you’re not alone.
Credit card companies may be raising interest rates before new legislation takes effect that would limit their ability to tack on extra fees. Companies are also increasing late fees, shortening or eliminating grace periods and hiking over-limit fees.
“There’s not a lot that we can do about it, other than develop relationships with other companies that don’t do that,” says Adam Levin, chairman and co-founder of Credit.com. “But most of them tend to [raise rates]…and they can blame the [economic] environment.”
Who’s Getting Hurt
About 15% of consumers say their creditors raised their rates, according to a survey by GfK Custom Research for Credit.com. Even worse, 8% say credit card companies lowered their credit limit, which could force consumers over their limit and subject them to additional fees.
The Credit Card Accountability, Responsibility and Disclosure Act, meant to protect many credit card holders from moves like this, was brought up by Senator Chris Dodd of Connecticut, chairman of the Senate Committee on Banking, Housing, and Urban Affairs in February. But if passed, the new rules wouldn’t go into effect until February 2010.
“Far too many families are forced to rely on short-term, high-interest credit card debt to finance their most basic necessities,” Dodd said in a statement. “The last thing they need is further financial hardship brought on by abusive credit card practices. These practices are wrong, they’re unfair, and they must end.”
Dodd’s bill has passed the Senate and a similar bill is scheduled for a vote in the House next week, though there’s stiff opposition coming from the banking industry. President Obama met today with executives from the credit card industry to discuss these issues, and emerged from that meeting firmly committed to credit card reform.
"I trust that those in the industry who want to act responsibly will engage with us in a constructive fashion, and that we're going to get this done in short order," Obama said, making clear that he intends to sign a bill into law.
Despite the possibility of rates rising now, there is something to look forward to. The new policy would prevent lines of credit from being cut or canceled without a valid reason and proper notice; would protect cardholders who pay on time; would limit fees and penalties and would protect young consumers from credit card solicitations.
The policy would no longer allow credit card issuers to increase interest rates on cardholders in good standing. It would require credit card issuers to lower penalty rates after six months, if the cardholder keeps in line with his or her obligations. It would also prevent creditors from charging interest on late fees and over-the-limit fees, and prevent them from charging customers to make payments, whether it’s by mail, phone, electronic transfer, or otherwise.
Protecting the Young
To prevent young consumers from racking up too much debt, the Credit CARD Act would require prospective cardholders under 21 to have a parent or guardian co-sign. Credit card issuers would also need proof that the applicant can independently repay his or her debt, or proof the applicant has taken a certified financial literacy course.
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