Retroactive Interest Rate Hikes Prohibited under the new Law

Apr 25, 2010

Next February, when the Credit Cardholder’s Bill of Rights go into effect, consumers will see an end to several money-draining practices. One of them is retroactive interest rate increases.

Experts estimate that this one provision of the law will cost credit card issuers an estimated $10 billion in lost revenues.

Since the current credit crisis began, stories abound about consumers believing they were paying a fixed low rate – such as 4.9% – or even 2.9% – and suddenly opening a statement to find that they were being charged a high rate – sometimes in excess of 20%.

Once the new law goes into effect, banks will be prohibited from raising the rates on your existing balances unless your payment is late by 60 days or more. They will no longer be able to cite “universal default” to raise rates on Card A if you were so much as an hour late on a payment to Card B.

They will, of course, be able to convert an introductory rate to a standard rate under the terms of an agreement you made when you borrowed money at an introductory rate. But there are also restrictions on this. Right now they can offer huge savings with an introductory rate, but set it to expire in 30 or 60 days. Under the new law, introductory rates must remain in effect for at least 6 months.

There’s even better news for consumers who can stay current for 6 months after a rate hike. If a rate is increased because a payment was 60 days late, the credit card issuer will be required to return it to the lower rate after 6 consecutive on-time payments.

Credit card issuers can – and likely will – raise rates on future purchases. The good news is that they will have to inform you 45 days in advance of the increase. This gives you fair warning to make major purchases before the increase – and even to cease using the card after the increase. The Current Truth in Lending law calls for a 15 day notice, but most consumers I’ve spoken with have been caught unawares.

Remember that credit card issuers will be using the next months to ramp up their profits, so be very careful to read everything that comes in the mail from any of your credit card issuers.

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