Does Credit CARD Act force rate reduction?

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Dear Credit Card Adviser,
I got hit with the universal default clause on some credit cards a few years ago when I ran into a financial bind. I have been making payments on time for 18 months now and have never been 30 days late (ever, even in the worst times), but have three cards currently at 29.99 percent. I have called repeatedly, and they refuse to even review my account.

Based on the new rules that take effect Aug. 22, it looks like they will be forced to review my accounts. My question is, what is the criteria on how much my rate should decrease based on my good recent payment history? Would it drop to 25 percent, 20 percent, back to the original 3 percent to 6 percent? Is there specific criteria in the bill that lays out if rate is x, and payment history is y, then new rate is z?

An additional concern is that I’ve read that the review applies to rates increased after January 2009. My problem is that my rates increased in 2008. Does that mean they don’t have to lower my rates, even if I haven’t been late or over my limit for more than 18 months?
— Paul

Dear Paul,
Unfortunately, no, they don’t. The provision you’re referring to in the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or Credit CARD Act, does require issuers to review rate increases every six months to determine whether the APR should be lowered. This requirement takes effect Aug. 22. As you mentioned, however, it only applies to rate increases that took place on or after Jan. 1, 2009. Your rate hikes are not covered.

To answer your first question, the law doesn’t require issuers to decrease the rate by a specific amount if a review of the factors indicates that a rate reduction is necessary. In general, the issuer can either examine the factors it based the rate increase on, or the factors it currently looks at to determine the APR that new customers receive. If the review shows that the reasons for the rate increase have improved, then the issuer must lower your rate within 45 days after completing the evaluation.

You didn’t say how much debt you have or whether you are having difficulty making the payments. That said, you might want to consider balance transfer cards, which offer low promotional rates for debt transferred from other cards. Our balance transfer calculator will show you how long it would take to pay off your debt if you move the balances to a new card. You should know that you would likely need a good-to-excellent credit score to qualify and have to pay a balance transfer fee. The median balance transfer fee is 4 percent for bank credit cards and 2.5 percent for credit union cards, according to a March 2010 study by the Pew Health Group.

If you don’t have large balances to transfer and just want a better interest rate, look to the competition. Assuming you now have a good credit score, you might be able to qualify for a low rate credit card.

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