Archive for Thursday, October 1, 2009

Credit users face higher interest payments

October 1, 2009


— Ann has $10,000 in credit card debt.

She was paying it off regularly at an interest rate of 7.15 percent. “Then all of a sudden, when I received my September statement the APR had jumped to 14.99 percent,” Ann wrote to me.

Ann joined millions of other credit card users across the country who have been notified that their interest rates are rising.

She has two choices: accept the higher interest rate, but she would only be able to make the minimum payment. Or she can reject the rate hike.

But if Ann says “no deal,” the credit card company has told her it will close her account.

Under the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 and Federal Reserve rules, a cardholder notified of a change in terms on or after Aug. 20 has the right to reject that change. If the consumer does so, the credit card issuer must allow the cardholder to repay the balance on the existing terms, make minimum monthly payments that include no more than twice the percentage of the balance included before the change in terms, or pay off the balance over at least five years.

The Federal Reserve Board’s rules implementing the CARD Act require that Ann be given the right to reject the 14.99 percent interest rate hike. However, the issuer is permitted to apply the 14.99 percent interest rate to any new transactions that occur more than 14 days after notice is given.

Ann’s concerns about getting another credit card with just as good a rate is legitimate. With a tightening of credit standards, she may have difficulty getting another credit card at all.

She has less to be worried about affecting her credit score because she does not have any other credit cards.

What most affects a person’s score when an account is closed is the presence of outstanding balances on other open credit accounts — not the closure of the account per se.

Here’s the address for a page on FICO’s Web site that discusses how closing a card account may influence a person’s credit score: myfico .com/crediteducation/


Ann, tell your credit issuer you won’t be played. You shouldn’t be carrying $10,000 on her credit card, but you shouldn’t stand for this treatment. So Ann, don’t take the banker’s offer.

No deal.


Use the comment form below to begin a discussion about this content.

Commenting has been disabled for this item.