Interest Rates // Current

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Credit card issuers raising interest rates before new law takes effect

Credit card companies are raising interest rates and fees seven months before new rules go into effect that will limit their ability do so, much to the irritation of Congress and consumer advocates.

Chase, for instance, will raise the minimum payment required of some of its customers from 2 percent to 5 percent of the statement balance starting in August. Chase and Discover have increased the maximum fee charged for transferring a balance to the card to 5 percent of the amount, up from 3 percent and 4 percent, respectively. Bank of America last month raised the transaction fee for balance transfers and cash advances from 3 percent to 4 percent. Card issuers including Bank of America and Citi also continue to cut limits and hike up rates, which they have been doing with more frequency since January.

"This is a common practice and will continue to be common, because issuers can do these things for really no reason until February," said John Ulzheimer, president of consumer education for Credit.com, which tracks the industry. "It's what I call the credit card trifecta — lower limits, higher rates, higher minimum payments."

The flurry of activity, which the banks say is necessary to shore up their revenue losses, has irked members of Congress, who passed a new credit card law that was signed by President Barack Obama in May. The law, among other things, would prevent card companies from raising rates on existing balances unless the borrower was at least 60 days late and would require the original rate to be restored if payments are received on time for six months. The law would also require banks to get customers' permission before allowing them to go over their limits, for which they would have to pay a fee.

On Wednesday, Sen. Charles Schumer, D-N.Y., once again requested that the Federal Reserve invoke its emergency powers to place a limit on interest rate hikes.

"This is what many of us feared about a law that didn't take effect right away," Schumer said. "It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law, and it is just plain wrong."Credit card companies are raising interest rates and fees seven months before new... more