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The Truth About Rising Fees and Interest Rates

by on October 20, 2009

The buzz about the new legislation regulating credit cards has resulted in card issuers raising their interest rates substantially Truth About Rising Fees and Interest Rates in the last few months.  The new legislation that is quickly coming down the pike has put financial institutions on notice. Consumers on the other hand are seeing this new legislation as potential relief from these seemingly unrestrained interest rate hikes and fee increases.  The ultimate goal of the legislation is to find some balance and fairness that both lenders and borrowers can be happy with.  Undoubtedly, there are costs associated with the use of credit cards that will have to be shared between consumers and lenders.   The truth about these rising fees and interest rates is only beginning to see the light of day, but the new legislation will hopefully tip the scales back in favor of consumers.

Historically, credit card fees have been charged to consumers for breaking their contractual agreements with their lenders.  Typical examples include over ingthe limit spending, and late payment fees.  Credit card issuers have gotten the attention of consumer advocate groups for sharply increasing interest rates and adding fees on very short notice to the consumer.  These practices have resulted in the government stepping in and introducing legislation to regulate and, in some cases, even eliminating some of these fees entirely. 

According to industry experts, the advance notice and details about this new legislation have provided card issuers with ample time to prepare new tactics for staying profitable.      Spiked interest rates, additional charges and annual fees have suddenly emerged out of nowhere on consumers’ credit card statements.  Card issuers have been frenetically adding these “buffers” in an effort to realign their revenue stream with the new reality of stricter legislation set to take full effect in early 2010. 

Many card issuers are trying to take advantage of the window still open prior to the new legislation taking effect as one last opportunity to take advantage of consumers before the reins get pulled in substantially.  Financial institutions that issue credit cards will have significant financial restraints to deal with once the new legislation is in effect.   Known as the Credit Card Accountability, Responsibility and Disclosure Act of 2009, the new legislation will put substantial restrictions on the ability of credit card companies to levy sharp interest rate increases or fee hikes on their customers. 

The laws set to take effect early next year will not protect the consumer on every level.  The time between now and then for consumers to manage their debt is crucial.  Smart card holders will take a good long look at their situation and make efforts to keep balances low, study their statements and ensure that payments are made on time.  Undoubtedly, lenders will be far more stringent and cautious when issuing any new credit cards.  Rates are sure to increase and credit limits will be more dependent on income, similar to more traditional secured lending scenarios.  Credit card companies will be forced to minimize their risks by being more selective under the new regulations.

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{ 3 comments… read them below or add one }

Gerry October 26, 2009 at 4:32 am

I have recently been contacted by Citi and Bank of America about increasing my interest rate on previous balances even though I have never been late with a payment (25 yrs. with Citi) or over the limit. Citi is increasing from 8.4% to 29.9% which will mean an increase in my monthly payment of over $700 in interest alone. When I tried to negotiate, I was told that I could only opt out which will close my account and hurt my credit score. The B of A was a fixed rate term loan which will now go to a variable rate that will also increase my payments greatly. I have a small business and a spouse with MS both needing all the funds I can come up with. Why are these "robber banks" forcing me into a position of not being able to make my payments and possibly lose out on the balance I owe, when I could pay them back (and have been) at a more reasonable rate??? It seems they want me to default!

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Punkin November 4, 2009 at 9:28 am

I'm in the very same situation. I'm sure there are many of us feeling the pain of being a responsible credit card payor and still our rates continue to rise. I am extremely upset and totally upset about this. I'm struggling trying to keep my cards paid on time. It is becoming extremely difficult. The card companies will not negotiate with me either. The only one to work with me was American Express because they believe me to be a good payor and a loyal customer (since 1982). I'm still hoping someone or something will be there to help all of us that find ourselves in this situation.

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Margaret Reeves November 25, 2009 at 6:18 am

I have had just this problem with my small business credit card through CapitalOne. My balances have been right at the limit but my efforts to pay down the balance until I get my annual bonus have been thwarted by the issuer's increase w/o notice interest fees and the practice of taking my payment(always in advance of the due date, then adding the exorbitant interest which puts me over the limit, then charging an astronomical $39 OTL fee. I get no notice by email Or US mail of "being over the limit". This has happened both in October and November after the due date. It seems unfair. Is it?

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