The third batch of provisions from the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act) of 2009 took effect Sunday. The new rules limit penalty fees on credit cards, require evaluations of rate increases every six months and extend the life of gift cards. The CARD Act has been rolling out in stages from last year through 2010. In February, the biggest phase took effect. Universal default on existing balances came to an end, as did the practice of applying payments above the minimum to lower-rate balances first.
Though the law requires issuers to notify customers 45 days in advance of most rate increases and restricts increases on existing debt, it doesn't cap interest rates or ban issuers from raising rates for any reason on future transactions.
Issuers haven't failed to use this remaining freedom. The Wall Street Journal reported this morning that credit card rates have reached their highest level in nine years. In the second quarter, the average interest rate for existing credit cards rose to 14.7 percent, the highest average since 2001, according to research firm Synovate.
Another disturbing trend was highlighted in the July 2010 report from the Pew Safe Credit Cards Project: the disappearing disclosure of penalty interest rates. Almost 95 percent of bank credit cards have penalty rate terms, but nearly half of them no longer disclose the amount of the penalty APR. Among the cards that disclosed it, the median penalty APR was 29.99 percent.
As of Aug. 22, issuers must provide a reason for increasing your rate, and re-evaluate that rate increase every six months to determine if a reduction is warranted. The law doesn't mandate a specific decrease in rate.
If you're facing a huge rate hike and have a good credit score, you might want to consider a balance transfer card. The CARD Act also gives you the right to opt out of certain rate hikes, which freezes the rate on existing debt but may result in a closed account and increased minimum payment.
For more information on the CARD Act, subscribe to Credit Card News.
Follow me on Twitter.