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Ask the Expert—
The Credit Card Act of 2009 (H.R. 627)—The Rush to Raise Interest Rates and More

Ruth Gaon, CEO

Q:  Last May, Congress passed the Credit Card Act of 2009 to protect debt-ridden consumers from many of the “surprise” changes that have become common in the industry.  Under that bill, most of the new rules will take effect in February, 2010—or at least that was the idea at the time.  On November 4, after hearing many stories of increased interest rates and steep new fees, the House of Representatives approved a bill that would accelerate the enactment date immediately.  What has prompted this action?

A:  Originally, because the Senate majority thought that the restrictions were too onerous for the credit card companies, they gave banks nine months to prepare for the changes.  But lawmakers (backed by an independent study by the Pew Charitable Trust “Safe Credit Cards Project”), have found that many banks have used the grace period to increase rates.  According to the most recent Pew findings, even the lowest interest rates offered on the top 12 bank cards have jumped by more than 20 percent since last year.

Q: What can a credit card holder do if this happens to them?

A:  While raising rates on even those credit card holders who have made on-time payments and have never gone over their limit seems unfair, until February 2010, it is not illegal.  The best thing to do right now is to call your credit card issuer and try to resolve the issue.  If it can’t be resolved, then cardholders can opt-out of the change, but will have to close the account.  Because this could potentially have a detrimental affect on credit scores, analysts recommend that before closing the card, open a new card with a better rate and the same or higher limit to keep the credit ratio the same on your credit report.

Q:  What other “practices” should credit card holders be watching out for?

A:  Watch is the operative word.  It’s good practice anytime, but credit card holders should be especially careful to read everything that they get from their credit card issuers in the coming weeks.  Here are some “practices” to watch for:

• Not only should they watch for interest rate hikes, but also decreases in their credit limits. 
• Some banks are toying with the idea of resurrecting the annual fee, which could be as high as $99
• Watch for your reward points to be worth less and to be charged another annual fee just for participating in your rewards program
• If you are assessed a “penalty rate” watch to see if your rate is adjusted after the specified penalty time period

Q:  You referred to the Pew Report earlier.  Who is the group who conducted the study and what is their purpose? 

A:  The Pew Safe Credit Cards Project (www.pewtrust.org/creditcards), part of the Pew Health Group, develops and promotes standards for consumer-friendly credit cards to help ensure the financial security of all Americans.  The Pew Health Group is the health and consumer product safety arm of The Pew Charitable Trusts, a nonprofit organization that applies a rigorous, analytical approach to improving public policy, informing the public and stimulating civic life. 
            The new report “Still Waiting: ‘Unfair or Deceptive’ Credit Card Practices Continue as Americans Wait for New Reforms to Take Effect”, examines all consumer credit cards offered online by the largest 12 bank issuers in America.  These banks control more than 90 percent of outstanding credit card debt nationwide.  The report also reviewed cards offered by the largest credit unions.  The Pew Safe Credit Cards Project gathered data from July of this year on nearly 400 cards, building on its previous research from December 2008. 

Key findings of the report show that:

• 100 percent of credit cards from the largest 12 banks used practices deemed “unfair or deceptive” under Federal Reserve guidelines
• 99.7 percent of bank cards allowed issuers to increase interest rates on outstanding balances
• 95 percent of bank cards were still applying payments to lower interest balances first so that they could continue to collect interest on the higher interest balances
• 90 percent of bank cards had penalty rate hikes