July 6, 2009

• News:  Banks Adjusting Interest Rate Calculations

  Banks are scrambling to adjust credit card interest rates, modify contract terms, and raise fees prior to the effective date of new legislation signed by President Obama in May. Major banks have already announced some of these changes scheduled to take effect within the next 30 days. At the heart of one controversy is the issue of credit card fixed interest rates versus variable rates. Some banks are switching from a fixed interest rate to a variable rate. JPMorgan Chase, the nation's largest credit card company says in some cases, interest rates will be determined by the current prime rate. Bank of America has already changed to a variable rate based off prime which begins in August. At the current time, prime rates are really low so consumers won't notice much of a difference in their interest rates; however, as prime rates go up, interest rates will rise as well.

  Credit card companies' actions to jump on fee and interest rate increases to beat out the deadline of the new legislation has motivated consumer advocates to solicit for immediate action from the Federal Reserve. Senator Charles Schumer recently requested the Fed take immediate action to ban such actions; however, his plea was rejected. Representative Barney Frank stated that these recent activities of credit card companies have only served to strengthen the President's proposal to form a new Consumer Financial Protection Agency. Banks, on the other hand, defend their actions by saying increased operating costs and efforts to meet the needs of creditworthy customers have motivated them to make the changes.

  Currently, a major plus for credit card consumers is that the prime rate is the lowest it's been in decades. That is sure to change. Meanwhile, we can expect to see more banks following JPMorgan and Bank of America's lead also looking to beat out the legislation's effective date. The new bill is scheduled to take effect in February 2010; however, some provisions will begin in August.
  
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