I received in the mail this week another notice from my credit card hiking my rate, for no apparent reason. It’s now up to 29.99% from 9.99% when I opened it just over a year ago. Luckily, this rate hike does not affect because I never use this card for purchases. This is the card which offered me a 3.99% locked rate for the life of my balance transfer which I consolidated all my debt to. I did call them to ensure this locked-in rate would not be affected by the recent rate hike. I will also call again to double-check before the new rate goes into effect.
A lot of people have been complaining about unsubstantiated rate hikes recently. In actuality they are not unsubstantiated, at least from the bank’s point of view. Almost every credit card that currently exists, even so called “fixed rate” cards, can have their terms and conditions modified at any point in time by the bank. You even signed something saying this was OK when you applied for the card. I’m sure you didn’t read it, but it was there in the fine print.
So, what’s the bank’s point of view?
Well, unknown, or maybe forgotten (since it was signed in May of this year), by a lot of people is the Credit CARD Act of 2009. This law was passed on May 22, 2009 but does not go into effect until February 22, 2010 and seems to have faded from the news lately. Basically this law will protect credit card users from the unfair practices the credit card companies have been using for years to make as much money as possible off us. The banks’ point of view is that this is the deadline for the unfair changes they can make to your credit card, and therefore they are trying to maximize their profit now by hiking up rates. You can read up more about the act here, but the main points as I see them are:
- No more “universal default” rate increases
- No more “double-cycle” billing
- Payments are applied to the highest rate balance first
- A hard credit limit (selectable by the card holder) in which transactions going over will be denied, eliminating over-limit fees.
- 21 calendar days grace period (increased from 14 days minimum now)
What to do if your rate is hiked?
The credit card I mentioned above is a Citi card and they allow me to reject the rate hike and close out my account at my current terms if I choose to. This means the account is still open until I pay off my balance at my current rate, but no new charges are allowed on the account. While Citi is doing this now, and I’m sure some other cards are as well, this option will also be available to all cardholders under the new law going in effect early next year. You might not want to close a credit card but at the same time, you just might not be able to afford not to.
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Citibank is hiking your CC rate to pay thousands of their executives 50% more in salary (google it). They also paid Andrew J Hall a $100 million bonus this year too with their 33% public ownership due to the bailout.
In a way, they are saving consumers, since consumers will be LESS inclined to use their CC with these new rates.
I had been thinking about a small credit card before the act finally went through. I was pretty surprised how hard some people fought against it, and just how much misinformation was out there. :-/
I’m still waiting on that card, I’ll get a new one after it goes into effect.