Consumer Tips on Credit Card APR Increases

Many credit card consumers have been hit with interest rate increases in 2009 that have more than doubled their rates. A tremendous number of fee and rate increases have taken place throughout the year, and credit card issuers have three more months to make additional changes before the major provisions of the CARD Act take effect.

Some issuers now charge 29.99% interest for cardholders with good credit. Consumers are questioning whether these increases are legal and if they are protected from this by the CARD Act. Congressional outrage and proposals to move up the date for the CARD Act are adding to the confusion.

“For consumers, things continue to get worse before they get better. They are angry these changes are happening to them and there is very little they can do about it,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “Until the CARD Act goes into effect on February 22, 2010, issuers still have the right to increase rates at ‘any time, for any reason.’ Struggling banks and issuers are using this time to adjust their business models and are raising rates and fees on millions of consumers in order to be in a better financial position before the regulations begin.”

The CARD Act does not freeze rates or put a cap on how high issuers can increase rates, but it does offer some good protections for cardholders.

One of the best provisions in the CARD Act will protect consumers against retroactive rate increases. Rate increases will only apply to charges made after the increase. Another good provision is that interest rates cannot increase during the first year on new accounts. There are several exceptions: when the introductory period ends; when the variable rate is tied to an index and the index increases; when the payment is more than 60 days late.

However, issuers can still raise rates at any time on new balances with 45 days of advance notice. They must provide a reason for the increase.

After the issuer raises the rate, it must review the account every six months. If the increase was based on market conditions, the creditworthiness of the card user or other factors, the issuer must reduce the rate if these factors have changed.

What can you do if your interest rate is increased?

• If you have a good credit score and clean payment history, call and ask for a lower rate. If you are not successful with the first person you speak with, politely ask to speak to the supervisor and make the request again. Issuers used to be very open to this. The economic climate is making it harder for issuers to grant these requests.

• Shop around for a new card. You are not married to your current card for a lifetime. If you are not happy with your current card, there is nothing preventing you from shopping for a new card and using that as your main credit card. Consumers are urged to shop around by comparing the details found in the terms and conditions of three or four cards. You don’t necessarily have to close your current credit card account. It may be advantageous to keep that open since closing down your account can negatively impact your credit score.

• The provisions of the CARD Act that went into effect in August now require that every issuer give their cardholders the right to “opt-out” of any interest rate increase. This means that you reject the rate increase, which closes the account, and allows you to pay off the balance at the existign rate for up to five years. If you plan on applying for a new replacement card with another issuer, submit the new application before opting out of this old card. Closing the account may cause a drop in your credit score and affect the rate on the new card. There are exceptions as to when you can opt out; cardholders can’t opt out of a rate increase if they are more than 60 days late paying a monthly bill, or if the variable rate rose with an increase on the prime rate.

“The only way that consumers can completely protect themselves against rate increases is to pay off their balance. If you don’t have a balance, it does not matter what the issuer charges you. With rates increasing to 29.99% in some cases, issuers are giving their cardholders a very good reason to pay off the card and just use cash,” says Hardekopf.