Credit Card Issuers to Begin Raising Rates
November 14th, 2008 by Kenneth Long
Credit card issuers are again planning interest rate increases for many of their cardholders. This is a reversal from the abandonment of the “any time for any reason” policy for rate increases that was previously in effect at many card issuers.
Several credit card issuers bowed to Congressional pressure in 2007 to stop increasing the interest rates of their cardholders simply because their credit report showed signs of financial distress. Since then, most credit card issuers would only raise the rates of their cardholders if they were late or missed a payment altogether. This would be true of payments on that card, as well as any other cards issued by the same card issuer.
The purpose of abandoning policies of universal default and the “any time for any reason” justification for rate increases was to appease members of Congress that threatened increased regulation. Credit card issuers insisted they could be trusted to regulate their own actions, and that the market would serve to regulate their actions.
Credit card issuers were certainly leery of a piece of legislation that threatened to increase regulatory limits on credit card issuers. This bill became known as the Credit Cardholders’ Bill of Rights of 2008 (HR 5244). It has not been approved to date.
Now that massive defaults on credit card debt is accompanying the massive numbers of foreclosures, credit card issuers are facing eroding profits and many are even posting losses. Citibank claimed a $1.4 billion loss for the third quarter of 2008 in its credit card division. Other card issuers are also facing potential losses in the near future.
Normally credit card interest rates average a few points higher than prime rate. As overall interest rates drop, so can average credit card rates. However, this time it appears that credit card rates are increasing in the opposite direction as an attempt to stem losses.
According to the New York Times, many Citibank cardholders could see a rate increase of two to three percentage points. It is likely that other distressed card issers will also raise the rates of some of their cardholders.
Avoiding Rate Increases
There are a couple of ways that a cardholder can avoid incurring an increase in their credit card rate. One is to simply decline the interest rate increase within the first 30 days. You lose the right to use the card, but at least you can repay your debt at the same interest rate.
If your interest rates rise because you are falling behind on payments, then you might need more substantial help. Consider meeting with a nonprofit credit counseling organization to find out how serious your situation is as well as to explore available options. The sooner you get help, the more options you will have available.
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This entry was posted on Friday, November 14th, 2008 at 11:56 pm and is filed under Consumer Protection, Credit Cards, Debt Management, Financial News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
November 15th, 2008 at 11:21 pm
HR 5244 is a very important piece of legislation particularly given the present economic climate.
This bill was to erase leage FRAUD by the credit card companies. There is no other contract quite like theirs.
Please don’t be fooled into believing self regulation will stop the outrageous abuses of the past. Support
HR 5244 it is a simple bill, easily read and understood. It is just plain fairness and common sense.
November 20th, 2008 at 9:38 am
According to a notice distributed by Citibank, affected accounts may experience an increase in the purchases APR of no less than 19.99%, regardless if prime rate falls. If prime rate increases, then the rate would be U.S. Prime Rate plus 13.99%. Citigroup has previously announced that these rate increases will generally affect anyone that has not had a rate increase over the past 2 years. It is possible that if your rate does increase, that it may increase to a rate different than 19.99%.