If you don’t already hate your credit card company, see how you feel in 20 minutes. Did you finally think you’d caught a break when the government tightened laws to protect consumers? Well, the credit card companies were way ahead of everyone, innovating their way around the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. They created—no kidding—a credit card with an interest rate of 79.9 percent. If you decided to spend less money each month, there was a card that charged you more interest for that privilege. If you didn’t agree to pay a higher interest rate, one company doubled your minimum payment—overnight, with no warning. And one card featured a vanishing credit limit—from $30,000 to $15,000, and then (after you called to complain) $8,000.
In advance of new regulations meant to protect us (many of the provisions took effect February 22), issuers raised rates, jacked up minimum payments, lowered credit limits, and tacked on even more crazy fees to protect their bottom line. Seemingly no one has been spared:The retired Navy officer in Belfair, Washington, with an excellent credit rating and a six-figure money market account? Capital One raised his rate from 6.9 percent to 15.9 percent and gave no reason. A spokeswoman for the bank said, “Account changes like this are necessary in order for us to appropriately account for risk and continue to lend in the current environment.”
The craniosacral therapist in Richardson, Texas, who charged $45,000 to finance her education and who had a good payment record? Chase raised her minimum payment from 2 percent of her balance to 5 percent and started taking the extra $433 out of her bank account automatically. A Chase spokeswoman said that last August, fewer than 1 percent of its customers—typically those who “have not made as much progress” on their balance—saw their monthly minimum payments increase from 2 percent to 5 percent.
The freelance editor in Tallahassee, Florida, who always pays her balance in full? She got slapped with a $45 annual fee on her Bank of America card. (“They couldn’t soak me with interest payments, so they thought they’d take it out on the front end,” says Lisa Finkelstein.) A bank spokeswoman says, “We are testing an annual fee on a very, very limited number of accounts.”
In a recent study by comScore, a marketing research firm, 53 percent of more than 2,000 respondents reported that a bank had raised their interest rate on a credit card in the last year, 26 percent reported reduced credit limits, and 21 percent complained about increased fees. Whatever their reasoning for the changes, banks seem intent on firing their customers, and it’s working. The comScore study reported that 27 percent of respondents simply stopped using a card after the terms were altered.
Now that the new consumer-friendly law has taken effect, we can all just get along, right? Sorry to say, the cat-and-mouse game between consumers and credit card issuers is hardly over. Many of these tricks are still legal and thriving under the new law, along with many more loopholes that banks are eager to test. Here are answers to the most pressing questions about the new regulations—and tips for avoiding traps.
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Q: Under the new rules, banks can’t mess with my interest rate, right?
A: Maybe. The law prevents issuers from raising rates on existing balances in most situations. That’s one of the biggest changes, eliminating a trap that has sent millions of families into debt spirals.
The Catch: After 12 months, banks can raise rates as high as they want on future purchases as long as they give 45 days’ notice. Consumers started getting a taste of these higher rates in late 2009. A 26-year-old job recruiter in Los Angeles had her American Express card rate bumped from 9.24 percent to 12.24 percent (even though she had never made a late payment). When she called Amex, “they said they were doing it to everybody,” she reports. A spokeswoman for the company says that last August, “in response to the business and economic environment, we found it necessary to increase some rates and fees on products.”
The Tip: “Watch your interest rates closely,” says Josh Frank, a senior researcher at the Center for Responsible Lending (CRL). As tedious and spirit sapping as it sounds, open and read everything that comes from your credit card company. “Some companies are sending out bills in plain envelopes,” says Lewis Mandell, a professor of finance and business economics at the University of Washington. Don’t mistake it for junk mail and throw it out. Remember: After 45 days, the new rate takes effect unless you have notified the bank that you choose not to accept it.
Q: So I have the right to refuse the new rate?
A: Sort of. The law says you can refuse to accept any new interest rate within the 45-day notification period, but you must stop using the card. You’ll have to pay off your existing balance over five years, at the old rate. Or pay double the minimum payment until the account is paid off.
The Catch: “Some issuers are not actually closing the account if you opt out,” says Josh Frank. “So if you accidentally use that card, it would constitute acceptance and trigger a rate increase.”
The Tip: Demand in writing that the account be closed. Until then, don’t use the card. Make sure you turn off automated payments on the card (check your online bank account).