Nov 24, 2010 Carmen Sofia Grant
Variable Rate Cards are Not Protected by new Law - Rotorhead
Credit card issuers will not be allowed to increase interest rates on credit cards without permission. If they want to increase the rate on a credit card rate, they have to give 45 days notice. At that time, if the cardholder chooses not to deny the increase, then the account will be closed. This new law was intended to provide extra protection for consumers, but credit card issuers are good at attempting to make back revenue.
Variable Rate Cards are not Protected by the new Credit Card Laws
One way that credit card companies are finding ways to keep revenue coming in is by changing fixed rate cards to variable rate cards, or by only offering variable rate cards. There is no protection under the new CARD act of 2009 for cards with variable rates. Variable rate cards are exempt from the new law, and card issuers have been quick to use this loophole to their advantage. Most cards are now variable rate cards, since card issuers know that they will be exempt from the new law. Pay attention when opening a new account and make sure that it is not pegged to a fluctuating rate, like the prime rate, which is the most common.
Advance Notice for Increasing Credit Card Rates
If a card issuer decides to increase the credit card rate, the cardholder has 45 days to decide whether or not to accept. If the cardholder says no, then the company will cancel the card and the person will have 5 years to pay off the balance. However, putting a time limit on the debt will increase the monthly minimum, sometimes by two to three times the original payment. This is because the cardholders take the total debt owed and divide it by 60 months (or 5 years). For some people it might make more sense to accept a rate hike and then power pay the balance at a later date when higher payments can be tackled better.
Increasing Rates Might not be Permanent
If a card holder cannot afford to have the card canceled, and has to accept the rate hike, they are not completely out of options. They can call back 6 months after the increase and ask them to lower it. Credit card companies will listen sometimes, especially if cardholder has been on time with payments and just happened to be late on one six months back, for example.
Always remember that there are options when dealing with credit, and they should be weighed wisely before making any decisions with credit cards.
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