Credit Card Interest Rate Increases

Under the old law, whenever a bank wanted to increase the interest rate it charged customers, it just sent out a letter saying that they were changing raising the interest rate. Consumers had no rights to do anything about it. The only option was to pay off the full balance immediately to avoid the higher interest rate, or transfer the balance to another credit card. In fact, when credit card companies needed to improve their balance sheets they would routinely do just this. If customers paid off their balances, then the company’s outstanding credit balance decreased. If customers didn’t pay off their balances, then their interest income from those balances increased. It was a no lose situation.

The new credit card law requires banks to give customers another option. Under this option, you can notify the credit card company that you reject the new interest rate which prevents your interest rate from increasing. In exchange, the account can no longer be used for new charges, but you may continue paying off your credit card balance under the old terms of the agreement. That means that you can still make the monthly payment, whether the minimum payment or otherwise, at the normal, sane, interest rate that you agreed to when you opened and used the credit card account. Obviously, this is not advantageous to the bank, so they are raising interest rates now, as fast as they can so that they won’t have to live by the provision once the law changes.

To fight back against credit card interest rate increases, the only thing you can do is pay off or transfer your balance before the new rate takes affect. If this isn’t practical, then continue making payments and pay off the card as quickly as possible. If you don’t carry a balance, the new rate won’t affect you until you do. The best vengeance is to never carry a balance on that card, ever. Credit card companies don’t make as much money off of customers that don’t pay interest, so keep using the card and pay it off in full every month. You’ll be fighting back against the credit card issuer and costing them profits. To really make them pay, be sure to take full advantage of their credit card rewards program to cost them even more money and make the card companies pay you!

If the way the company is treating you makes you so mad you want to close the account, don’t! At least not right away. Closing the account means you lose all of your reward points or miles. Instead, make sure you redeem every single credit card miles point you have earned before closing the account. Also, be sure you understand the effect closing an account can have on your credit score.

Finally, the most important thing is to REMEMBER. Banks are counting on their customers being mindless consumer sheep who don’t take the time to properly manage personal finances. They figure if they screw you over now, you will have forgotten all about it in six months. Don’t let them win! Remember exactly who did what and either close their accounts, or use them in a manner that makes them unprofitable for the company. If enough customers fight back, maybe next time, the banks won’t be so eager to try and cheat their customers.

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How To Fight Credit Card Company Interest Rate Increases originally published at Finance Gourmet

How do these new credit card laws affect smart credit card users who take advantage of good credit card rewards programs to earn points or miles?

One of the major rule changes states that when the credit card issuer decides to unilaterally change the terms of your contract, they have to give you 45-days advance notice.  If the new terms are not acceptable to you, you can opt out.

There is a catch.  In order to opt out, you must cancel your card, and close your account.  Then, you have to pay off the whole remaining balance within a certain number of days.  Oh, yeah, and that doesn’t apply to variable rate cards.

If you pay off your credit cards every month, then this is no big deal, because you could always pay off your card account and cancel it before you were charged any interest anyway.

If you carry a big balance on your credit card, then this doesn’t really help you anyway, unless you can figure out how to pay off that credit card account in 90 days.  If you could do that, you probably wouldn’t have the large balance in the first place.

Basically, the only people this really helps are people who have small to medium sized balances on their credit cards, and people who can take advantage of balance transfers to other credit accounts.  Of course, in that case, it was always possible to do that and then cancel the card anyway.

In other words, you have to be just as sharp and aware of credit card companies tricks.

Credit Card Rules Change Used to Hide Bad Company Behavior

As we’ve come to expect from banks and credit card companies, many credit card issuers are taking advantage of all the noise around the new credit card rules to make a few not-so-favorable changes to their credit card terms as well.

American Express recently notified some customers that their rates were going up.  The new rates are a variable rate equal to PRIME plus a certain percentage.  Some card holders report getting new terms of PRIME RATE plus 12% or so.  With the Fed holding rates at all time lows (nearly zero percent) that means that the interest rate on these American Express cards will be around 15%.

That doesn’t sound too bad.  Except for two things, first, now that these customers have variable rate cards instead of fixed rate cards, the helpful rules no longer apply because different rules apply to variable rate accounts than credit card accounts with fixed rates.

Second, watch out as the economy recovers and the Fed starts to raise interest rates back to more normal levels.  PRIME interest rates of 4% are just a 1% raise in the Federal Reserve target interest rate away.  Putting the Fed Funds rate back at a still very low 3% means a PRIME rate around 6% and the American Express card interest rate rises to 18% pretty quickly.

Be careful out there.  Remember always take advantage of reward credit card programs.  Use these various credit card rewards points to offset the expenses and inconveniences of always having to watch your back to make sure the credit card companies are sticking a knife in it.

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1. Credit Card Rewards Programs – Are New Laws Making Them More Stingy?
2. 529 Plans New Rules for 2009 and 2010

New Credit Card Laws Change the Rules in 2009 originally published at Finance Gourmet