New Credit Card Regulations and Games Creditors Play

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The Credit Card Act of 2009 was recently signed into law by President Obama with many positive benefits for Americans.   Here's some of the Act's features:

  • written notice must be provided at least 45 days in advance of a rate increase or significant change in terms. 
  • prohibition of universal default.

Consumers have the right to refuse a proposed higher rate, and the credit card company may close the account and demand the account be paid off within five years.

One of my clients, with excellent credit scores, recently had two of her department store credit cards inform her that they were going to jack up her interest rates around 5% higher for really no reason at all.   She has the right to refuse this and if she does, they will close her accounts.   This will most likely show on her credit report as a "closed by grantor" which doesn't look pretty.  Even though my client has great credit, this looks as if she had an issue with paying credit and it was the creditor who closed her account–not her.  Regardless, a closed account with a balance on it may be damaging to your credit score.  Here choices were to accept a 5% higher interest rate or have her account closed with a payment amortized for 60 months (much higher payment).

What did I recommend for her personal scenario?  NOTE: Your scenario may require different actions…everyone's situation is unique.

She is currently in the process of a rate-term refinance to reduce her interest rate and to convert her adjustable rate mortgage to a 30 year fixed rate.  With her personal scenario, she will use a combination of the refund of her existing reserve account from the mortgage servicer who is being paid off and the "skipped" mortgage payment to apply towards paying off these two department store credit cards.  She's lucky.

And it's not just department stores who are jacking up credit card rates on consumers…banks are too:

"Millions of Wells Fargo & Co. credit card customers will soon feel the pinch of higher rates, as the bank and other major credit card issuers rush to get ahead of new consumer protection rules that would limit their ability to jack up rates.

The San Francisco-based bank, the nation's eighth largest issuer of credit cards with $22.3 billion in total balances, said Wednesday it plans to raise interest rates by 3 percentage points on the "vast majority" of its 5.9 million credit card customers. The higher rates will go into effect on Nov. 30 — one day before Congress wants to enact new rules that put strict limits on rate increases on existing credit card accounts. Customers of Wells Fargo will begin receiving letters as early as today notifying them of the change."

Although the Credit Card Act of 2009 is intended to help consumers, it's not going to totally stop the games credit card companies and banks play.  Before you react, it's important to know what your options are and how it may impact your credit scores.  This is a great "excuse" to obtain a tri-merge copy of your credit report to review your scores and what's being reported about you and your credit.

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