A credit card agreement isn’t anyone’s first choice for reading material. The language is arduous and the terms are intentionally vague. That being said, it’s still important for consumers to understand the message that they are ambiguously trying to convey. The new credit card law (Credit CARD Act) was supposed to bring clarity, but some credit card companies are using old tricks in order to keep consumers in the dark regarding their protection from interest rate increases.
It used to be that credit card companies, such as Chase, Bank of America, Citi, and American Express, could re-price your APR on your entire balance for any reason and at any time. All they had to do was give you notice and there wasn’t a lot that you could do to avoid the increase. The CARD Act has certainly made the rules around rate increases better for consumers – but that hasn’t stopped credit card companies from trying to make you think otherwise. Although the fine print is confusing, you should rest easy knowing that the consumer protection rules in the CARD Act apply to all credit cards, with the exception of business credit cards.
To investigate just how misleading the credit card companies are trying to be, CardHub.com evaluated the top 10 credit card issuers (based on outstanding balances) for the clarity of their post-CARD Act Penalty APR polices in the June 2010 Penalty APR Study. The study gave overall poor ratings to 6 of the 10 issuers because they were either lacking transparency or appeared to be utilizing the new rules to engage in “gotcha” rate practices. The fact that the majority of issuers evaluated did not clearly explain how rate increases work is not surprising, given that the study also found that the Sample Statement on the Federal Reserve’s Consumer’s Guide to Credit Cards does an equally poor job.
Long story short, the CARD Act has made things better, but if you look at the credit card companies’ disclosures it’s impossible to determine what their policy is relative to the law. Therefore, trying to make out the fine print on your credit card application is a waste of time. When it comes down to it, no matter how vague or complicated they try to make it, all credit card companies have to uniformly comply with the rules under the CARD Act.
So here is what you need to know:
Under the new law, a credit card company may not increase the APR on your existing balance (i.e. purchases you have already made) unless you are 60 days delinquent in making a minimum payment on your account. If your interest rate is increased for this reason, they are required by law to bring your interest rate back down to the regular rate after timely payments for six consecutive months.
The credit card company may not re-price any of your APRs on future or existing balances for the first 12 months unless you are 60 days delinquent. Should they change your rate for future transactions for any reason, they are required to send you a notice specifying the reason for the rate increase 45 days in advance, and the rate increase can only apply to purchases made 14 days after the notice was sent. If you feel the rate increase is unfair, you can reject the changes. You won’t be able to charge anything else to the account, but you will be able to pay down your existing balance at your own pace and at the regular APR.