Based on the unprecedented amount of feedback received by Smart Balance Transfers this year, I think its fair to say that a very large percent of credit cardholders have endured at least one interest rate increase, credit limit cut or account closure this year. In fact, I wouldn’t be surprised if a majority of Americans were impacted this year. The Credit Card Act, which gained steam early in the year and finally passed in the spring, was supposed to prevent the reckless and massive rate increases so many of us have experienced. Unfortunately, it may have fueled the rate hike frenzy and a new push from Congress to implement new laws is clearly too little and much too late.
Whether or not the passage of the Credit Card Act was responsible for the unprecedented interest rate hikes that have left many Americans paying interest rates as high as 29.99% is an issue for debate. I, however, believe the Credit Card Act triggered a domino effect, causing already nervous banks to overreact to the threat of more stringent laws. This, in turn, fueled a nine month long parade of rate increases from just about every major credit card company, culminating in Citibank’s raising of interest rates to 29.99% two weeks ago.
Even without the new laws, credit card companies were facing massive losses and record customer defaults. However, the new laws will change the way credit card companies do business, taking away risk controls and fee income that help offset the risk of unsecured lending. Consequently, as the passage and implementation of the laws became a reality, credit card companies went into overdrive and interest rate notices became as common as pre-approved credit card mailings were two years ago.
Now, after the bulk of interest rate increases have already been passed onto consumers, Congress is looking to push up the implementation of the final parts of the Credit Card Act. Unfortunately, it is too little, too late. How much higher can Citibank raise interest rates? Not more than 29.99%. The same is true with most other banks, most of which raised rates this spring and summer. Thus, with interest rates already through the roof, a move to halt rate increases on December 1st would be nothing more than a political sideshow. And that show is financed by the increased interest rates we are paying in exchange for consumer protections that have done nothing but harm the finances of millions of Americans.
Sources: http://money.cnn.com/2009/10/28/news/economy/credit_card_practices/?postversion=2009102816
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