As banks recover from the effects of the recession, they are also facing new, tough regulations from the CARD Act of 2009 effective February 22, 2010. The biggest effect of the CARD Act is that credit card companies will have more difficulty in repricing existing credit card balances if customers start experiencing financial difficulty. For example, a single late credit card payment can no longer trigger an interest rate increase. A 60 day delinquency is required to raise interest rates.
Because of this, most credit card companies are sending notices to consumers notifying them that their credit card terms and conditions are changing, usually for the worse. In credit card lingo, this is also called adverse action.
In most cases (but not all), consumers can reject the change in credit card terms. However, if a consumer rejects the new credit card terms, the banks will close her account, which may cause a short term, minor hit to their credit report and FICO score as well as reduce the consumer’s access to credit.
Low APR Credit Card – Change in Credit Card Terms
In the past, low APR credit card balances could be repriced to higher interest rates when a consumer makes a late credit card payment. Under the CARD Act of 2009, that is no longer possible. Instead, credit card companies are charging much higher interest rates on non-promotional balances prior to the enactment by forcing consumers to accept a change in terms that increases interest rates or close their account.
End of the Low APR Fixed Rate Credit Card
In reality, fixed rate credit cards never existed. Card issuers were always able to change the interest rate at any time. Only existing credit card balances with a fixed APR were exempt from changes. Most fixed rate credit cards will turn into a variable rate credit card.
Decline a Change in Credit Card Terms and Conditions?
Consider a 4% interest rate increase on a $10,000 balance. If the consumer keeps her card, that decision will cost her $400 per year. Look at the $400 increase as an annual fee to keep her credit line open. If her credit card issuer has also been decreasing her credit line prior to the change in credit card terms, it makes absolutely no sense to keep her card for a credit line that’s always going to be a few hundred dollars above her current balance. If the credit card has a generous credit line, it may be worth keeping because credit is much tighter than before the recession. Those not carrying a balance should not be concerned about a change in interest rates.
For the foreseeable future, consumers should continue to watch their mailbox and credit card statements carefully for future efforts by the banks to change credit card terms. Because banks need new ways to make fees that were lost due to the CARD Act, no annual fee credit cards may become a thing of the past. The benefits from reward cards may be less generous or disappear altogether. Other new credit card fees may come up as well. Those new fees will affect everybody, including those who do not carry a balance.