Credit CARD Act: When Interest Rates CAN Go Up

Credit cardsThere’s one week to go before credit card reform takes full effect and surveys suggest that many consumers are unaware of its basic protections, including an historic first – a general prohibition against interest rate hikes on existing balances.
There are, of course, exceptions in the new laws. But  those caveats are tilted in favor of the consumer when they pertain to outstanding balances.
For example, even violating the late payment rule – failing to make the required payment for 60 days – will not permanently hike the interest rate on the existing balance if the cardholder makes his regular payment for six months after the higher penalty APR is applied.
There is, though, a clear distinction in the reform between rate hikes on existing balances versus those on future transactions. The credit card company can raise your rates on future transactions as long as they give you 45 days advance notice of the increase.
The other primary distinction is for revolving credit accounts based on a variable rate index. Those card rates can go up at any time in line with the designated index, in addition to any margins that are applied.
Dubbed the Credit Card Accountability Responsibility and Disclosure Act of 2009, or Credit CARD Act, the reform offers the most complete protection against interest rate increases during the first year of an agreement between the cardholder and card issuer.  The CARD Act takes effect Feb. 22.
During the first year, no interest rate hike is allowed, except when the standard rate stated in the initial agreement kicks in after any “introductory” rate. The reform requires that such special lower rates, often used as a marketing tool to capture new customers, must last at least six months.
“After the first year…a card issuer is permitted to increase the annual percentage rates that apply to new transactions, so long as the issuer provides the consumer with 45 days advance notice of the increase,” the Federal Reserve wrote in its “final rule” on the reform provisions.
A Quick Recap
According to the Fed’s final rule, credit card issuers are prohibited from applying increased annual percentage rates, and certain fees and charges, to existing credit card balances, except in the following circumstances:
(1) when a temporary or introductory rate – lasting at least six months – expires;
(2) when the rate is increased due to the operation of an index – a variable rate;
(3) when the minimum payment has not been received within 60 days after the due date;
(4) when the consumer successfully completes or fails to comply with the terms of a workout arrangement.

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