While most consumers celebrated the new changes brought about by the CARD Act beware of two loopholes that can catch unknowing credit card users in a costly mistake.
Banks vehmently opposed to the CARD Act put their collective heads together and devised ways to either circumvent the new law or put new fees in place in order to make-up the revenue differences. The first of these attempts is the 45-day change in a consumer’s Annual Percentage Rate (APR). While you may believe that this increase (the APR never decreases!) will only affect any new purchases made on the card, guess again. According to advocacy group, Healthwithmybank.gov, “After 14 days, the new rate will apply to new transactions…and after 45 days, it can affect all balances on the account.” That can mean significant interest rate fees may snowball into a sizeable debt – especially if you aren’t aware that the credt card companies are doing it.
The second area involves an increasing APR on all balances when the account goes over 60 days past due. Not only will your entire balance be affected, but the credit card company can also retroactively hit your account with the interest rate increase effective 14 days from the date the notification is postmarked to you. As of the 15th day, your credit card balance will be impacted by the higher rate and after the 45-day mark, your new interest rate will be in effect and the statement will reflect the fees retroactively applied to your entire balance. While some major banks like Bank of America have elected not to use this loophole for past due accounts, most of the major banks are operating under this rule.
What can consumers do?
The moves made by a majority of the nation’s credit card companies are, sadly, entirely legal. You have a few decisions to make once you receive notification of a new APR:
1. Make plans to pay off the entire balance before the new APR takes affect and close the account.
2. Make plans to pay off the balance as quickly as possible with lump sum payments and cancel the card.
3. Talk with your credit card company about transferring the balance to a lower rate credit card. If they don’t offer you this option, shop around for another credit card company that will.
4. If you can’t repay the entire balance immediately, don’t use the card for any further purchases.
Unfortunately, the consumer is still at the mercy of the credit card company when it comes to changing APR and paying off the balance with the old APR. Bear this in mind when you use your credit card and only charge what you can afford to repay in one month’s time. Yes, emergencies happen, but know that whatever amount you charge to the card can soar to astronomical loan-shark rates at the whim of your card issuer.