The Pew Study was one of the first research studies to delve into the impact of the recent credit card legislation and reforms. Beginning in July 2009 the study evaluated nearly 400 cards offered by major card issuers in the US. Some of the card issuers, while having adequate time to implement the new changes, have made little, if any progress. Of the 400 cards reviewed in the Pew Study all the cards had at least one “unfair and deceptive” practice.
One consumer, with Citibank, recently received a letter from his card provider outlining that they were changing their credit terms. What they really meant was that the interest rate was doubling from 14.99 percent to 29.99 percent. Having never been late with a payment the card holder thought it was a joke. To avoid interest rates like this the only option consumers have is to ‘opt-out’ and try to find a new card.
The Pew Study on unfair or deceptive card practices finds that all but one card had terms in the agreement which allowed the issuer to increase the card interest rate without warning or reason, such as a late payment. Ninety percent of the cards issued came with high default interest rates. The average default interest rate on these cards registered at 28.99 percent. Missing a single payment would automatically kick-in the high default rate. This high interest rate stays in place even after the cardholder maintains payments.
Immediately freezing interest rates on credit card accounts was established by Colorado Congresswomen Betsy Markey with the introduction of the Credit Card Rate Freeze Act, which was in response to her constituents reporting disturbing interest rate hikes. Fixed rate cards are a thing of the past — all credit cards nowadays have interest rates that are tied to the prime rate. The study also identified that the banks have started to raise interest rates and fees rapidly as the date of the reforms draw closer.
People are understandably angry as all this has occurred despite the fact that the Federal Reserve has set interest rates near zero, at historic lows, which has allowed banks to borrow cheaply.
Regardless of these circumstances, consumers must continue to monitor their credit card statements each month and review all correspondence in order to note the changes effecting the cards you use. It is key to maintaining your personal financial situation.
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