November 3, 2009

 

Despite the low Prime Rate, many consumers are seeing higher interest rates on the credit card statements. Consumer advocacy groups say that credit card companies are scrambling to raise rates and add fees while they still can, delivering another blow to American consumers who are already struggling in this tough economy. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (known as the Credit CARD Act) goes into effect February 22. Once that happens credit card companies will be prohibited from raising rates on outstanding balances or changing contract terms as long as minimum payments are made on time. In addition, 45 days notice must be given before changing a consumer’s contract terms. The credit card companies deny that the looming deadline is the reason for raised rates. They blame increased late payments and the recession, which they say present a much greater risk that all cardholders will default.

Lawmakers have caught on to this debate and some have apparently sided with the consumer groups. The House Financial Services Committee voted to move the effective date of the Credit CARD Act to December, instead of February. But Federal Reserve Chairman Ben Bernanke pushed back – arguing that banks and credit card companies would not have enough time to prepare for the huge changes called for in the Credit CARD Act. In an effort to get around that argument, bills have now been introduced in both the House and the Senate that seek to freeze interest rates on existing balances. Senator Chris Dodd, a long-time advocate for credit card reform, says that none of the objections raised by the industry (or Bernanke) apply to a simple rate freeze.

It remains to be seen whether consumers will continue seeing raising rates and new fees over the next few months. But come February, the regulations implementing the Credit CARD Act will certainly shake up the way credit card companies operate.