July 23, 2009
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News: CC Law; Does It Protect Consumers?
If you think your credit card accounts will be protected with the new credit card legislation that becomes effective in February 2010, guess again. Credit card companies have already begun implementing new policies and filling the gaps left by the law's loopholes. One provision that leaves a major loophole stipulates that lenders must notify you of an interest rate increase 45 days in advance. What you might not know is that this provision only pertains to accounts with a fixed interest rate. Nearly every major lender has already notified their customers that they are switching all accounts to a variable interest rate. If your account has been switched to a variable rate, don't expect to hear from your lender when your interest rate increases.
Fixed rates are attached to another provision, that which requires interest rates remain the same for one year after a new credit card account is opened. Again, lenders are switching nearly every account to a variable rate giving them the ability to raise the interest rate at any time. The two largest credit card companies in the U.S., JPMorgan Chase & Co. and Bank of America Corp have both switched all accounts to a variable interest rate to become effective with next month's billing cycle. In some cases, customers are allowed to opt out of the switch, but in doing so, they are required to close the account and cease using the card. Bank of America's student accounts will remain with a fixed interest rate.
JPMorgan Chase is contemplating setting a floor on interest rates. In other words, if prime should drop very low (as it currently stand) a floor would not allow the interest rate to fall below a particular set point. If the bank implements this change, you can be sure they'll be burying it somewhere in the credit card's fine print terms and conditions. Well, it appears the new legislation left enough loopholes to compensate for the small concessions the financial industry did make. One piece of advice; read every word of your contracts. If you aren't clear on any provisions, seek assistance from someone who can explain it to you simpler terms. And lastly, stop using your cards and get the balances paid off as soon as possible.