Credit card interest rate and fee hikes

Credit Card interest rate and fee hikes

The new laws, as discussed in our past Newsletters, will include the end of credit card companies being able to raise rates on existing balances unless the borrower was at least 60 days late and would require the original rate to be restored if payments are received on time for six months. The law also states that banks must get customers’ permission before letting them go above their  limits and also using this as a reason to charge extra fee’s. It is unclear why these new rules were not set to take effect immediately. Why wouldn’t the creditors use this extra time to build fee’s and interest from us when they know full well it will be difficult in 2010?  Why did Congress give them this extra time in the first place? It seems pretty obvious that with no punishment and their clear view of the future limits to come this would occur.

On this other side of the coin, Creditor’s feel that they will have a new burden of underwriting risk when these rules go into play. If they no longer can charge higher rates to riskier consumers (consumers with lower scores) how do they account for the losses they are likely to incur in the future? In June Credit Card losses hit a record high of 10.44% and the average credit score has been decreasing since the economy has changed. If the new rules curtail their ability to charge the interest and fee’s they need to write the higher risk consumer they will have to charge more across the board no matter how high your score is.

Samuel Wang, vice president for public affairs at Citi said, about hikes in rates and fee’s, “These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit,”



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