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The first phase of provisions included in The Credit Card Accountability, Responsibility and Disclosure Act finally goes into effect this month as credit card issuers will be required to give at least 45 days’ notice of any significant change in their card offerings such as hikes on interest rates for fixed rate accounts. “This is the biggest credit card reform we’ve had in decades,” said Sally Greenberg, executive director of the National Consumers League. “It reins in some of the worst abuses of the credit card industry.” The key word in the quote is “some” as the law puts restrictions on some aspects of credit card accounts while leaving other areas alone.
Credit card holders have been sweating out the summer as issuers have rushed to put in rate, fee, and payment hikes prior to the provisions of the bill going into effect. Delivering on its promise of passing through higher expenses and spreading its risk management costs across the full spectrum of their card holders, the credit card industry has made some painful changes for card holders within the last month.   Two of the biggest changes are the switch away from fixed accounts and the raising of the minimum monthly payment, specifically at Chase, from 2% to 5% of the outstanding balance on the card.
Despite the pain felt by card holders since the bill’s passage in May, politicians are promising that the new bill will deliver regulations that will protect holders from a long list of abusive and arbitrary industry practices. The protections, to be phased in between now and February 2010 include:
* A restriction which prohibits interest rate hikes on new fixed rate accounts for a full year. The protection does not apply if a card holder goes sixty days late on payments.
* A requirement that an interest rate hike based on a sixty day late payment be repealed and returned to the pre-hike rate if the holder makes on time payments for six months.
* Restricts issuers from hiking rates on existing balances for fixed accounts unless the holder is sixty days late.
* A 45 day notice for rate increases on fixed accounts or for margin increases on variable accounts.
* A prohibition on charging fees on credit card payments, such as those charged to make payments by phone.
There are several restrictions in the act regarding the issuance and maintenance of credit cards for people less than 21 years of age:
* The new law requires an adult co-signer on any new accounts.
* The adult co-signer must approve any increases in credit limits in writing.
* People under 21 must opt-in to receive solicitations for new cards.
Two major disclosures are also required from issuers:
* They must detail the length of time it will take and the total cost of paying off the balance on a credit card by paying only the minimum requirement each month.
* They are required to post their complete credit card account contract online to allow for side by side comparison shopping.
There are several areas that the Credit CARD bill doesn’t touch including:
* Annual fees (which are being initiated by many issuers)
* Grace periods for purchases (which are being eliminated)
* Rewards (currently being cut back or eliminated)
* Increases in interest rates on variable accounts when the benchmark rate increases (issuers like Bank of America and Chase are already notifying card holders that they are being switched from fixed to variable rate cards)
* Increases in minimum monthly payment percentages (happening now)
* Reductions in available credit
* Arbitration – The two biggest arbitration companies “voluntarily” left the business after lawsuits were filed alleging that they were backed by credit card companies and collection agencies. It remains to be seen how disagreements will be handled without these companies but one thing is certain; the Credit CARD Act isn’t going to provide any guidance.
Credit CARD Act or not, it looks like the cost of using credit cards is going to go up for most of the people using them, according to the American Bankers Association. A recent statement issued by the ABA stated, “Those who have managed their credit well and currently have very good credit card deals will find that card companies are limited in their ability to distinguish between them and those that have credit problems.” Sally Greenberg, of the National Consumers League said despite the provisions of the act, credit card issuers are still running the show. “They still write the rules for card agreements, and there is still lots of fine print,” she said.

Ms. Greenberg also added that she is expecting a “girdle effect” with card issuers as certain abusive practices fall under regulation while other practices will be taken advantage of as issuers seek and develop a new list of ways to separate holders from their money. “It’s not a fully level playing field,” she said. “Not yet.”

Starting this week the first phase of the Credit Card Accountability, Responsibility and Disclosure Act (The Credit CARD Act) goes into effect, requiring issuers give  card holders 45 days’ notice prior to raising their interest rate or making other material changes to other terms in the card’s agreement. The new rule gives borrowers the choice to opt out of the increased rate and pay the balance off at the former interest rate while making no further purchases on that specific card. A second rule going into effect requires credit card companies to send out bills twenty one days before a payment is due. These two new rules are the first of a raft of new consumer protections to be phased in under the credit card law enacted in May. All of the law’s changes will be in effect by February 2010.
The coming changes arrive after weeks of increases by the banking industry on minimum monthly payments, interest rates, and other fees charged to credit card holders. Nessa Feddis, American Bankers Association vice president for card policy, said it was impossible to quantify how much of the industry’s behavior is being driven by the need to cut risk due to the weakening financial position of consumers or the regulatory changes contained in the new bill. She did admit that, “A strong part” of the account closings is due to the new 45 day advance notice rule at a recent conference call to reporters.
Prior to the bill going into effect, the standard industry practice was to hike rates on consumers immediately after an infraction, such as a late payment. Usually disclosed in the fine print of the application, borrowers would then complain that they were being hit with sudden rate increases and not given enough time to react to them. The new rule disallows issuers from basing immediate rate increases on these kinds of infractions by requiring 45 days’ notice for all significant changes in the account terms. Additionally, issuers won’t be able to raise rates on an existing balance unless a consumer is at least 60 days late. The requirement does not apply to certain card plans, such as those with variable rates based on a benchmark like the prime rate or an expiring promotional rate that was disclosed upfront.
The changes in the new bill will end “the tricks-and-traps business model that was designed to get consumers to accumulate a lot of interest,” said Ed Mierzwinski, who heads financial services matters for the consumer group U.S. PIRG. The credit card industry, which vigorously fought the passage of the Credit CARD Act, contends the law will make it much more difficult for them to manage losses from the riskiest borrowers thereby forcing the cost of those risks to be spread across all card holders. That sentiment was summed up by Ms. Feddis saying, “Credit cards will be less available to consumers, their limits will be lower and they will pay more for credit.” She added that the new regulations will force issuers to innovate, though it’s not yet clear how. Hiking annual fees, cutting grace periods, eliminating perks and rewards programs are all on the table, she said.
Credit card holders should check their incoming statements for any rate hikes and other changes going into effect ahead of the regulations. If you are getting hikes in rates, fees, or payments check your contract to see what your rights are in terms of cancelling your account. If the increases on your account are going to push your monthly obligations beyond what you can pay, you’ll need to take action quickly. For instance, Chase is already in the process of raising their minimum monthly payment for a portion of their card holders from 2% to 5%, an increase that will challenge many of those borrowers immediately.
Start looking around for promotional offers as it’s inevitable that a few credit card issuers will try to attract card holders looking to make a move in the present environment. Be sure to get details, like the length of time for a promotional interest rate, in writing.
If you are currently carrying a low credit score transferring your balance to a new issuer could be difficult, if not impossible. If a transfer is not an option, you are struggling now, and higher payments are looming, entering into a debt settlement process may be your best course of action.
Debt settlements carry several advantages for borrowers:
* An immediate reduction of approximately 50% on monthly payments for every account rolled into the settlement
* Accounts which can be included in a debt settlement are credit cards, department store debt, medical bills, unpaid utilities, etc.
* The balances on each account in the debt settlement can usually be negotiated down by 40% to 60%
* The schedule for paying off the negotiated debt in full is flexible and based on the borrower’s budget.
* Typical payment schedules run from 18 to 48 months.
The results from debt settlement companies can vary widely so it’s important to work with one you can trust. Be sure that the company is an accredited member of The Association of Settlement Companies (TASC) and that they have a long record of successful debt settlements. Interview them and ask enough questions to see if a debt settlement plan and the company that will negotiate it is right for you.

After lobbying aggressively against its passage credit card issuers gave two warnings about the Credit Card Accountability, Responsibility and Disclosure Act of 2009; that interest rates on their cards would have to increase and that the availability of credit would diminish. On May 22, 2009, President Obama signed the bill and the issuers have been making good on their warnings ever since. Administration officials feted the law’s passage as “marking a turning point for American consumers and ending the days of unfair rate hikes and hidden fees.” Unfortunately for those the bill was meant to protect, its impact has not matched its intent, as consumers reel from the hikes in rates, fees, and payments being put in by credit card issuers prior to the law’s provisions going into effect.
Since the bill’s signing, issuers have made, and continue to make wholesale changes to their cards ranging from fee hikes to switching accounts from fixed to variable interest rates. Other changes include the restriction of card benefits and steep rate increases as the credit card companies race to set their pre-regulation benchmarks before the provisions take hold. One increase which will cause immediate pain for a set of card holders is Chase’s increase of its required minimum payment from 2 percent to 5 percent. Issuers are also hiking balance transfer fees by 60% to 100% as they cut credit limits across the board.
What happened? How could a bill with such honorable intentions make things so much worse, at least in the short term, for the most vulnerable card holders? Part of the answer lies in the allowance of time for credit card companies to get ready for the regulations to take effect. The problem for consumers is that the time allowance also gave the issuers a gaping window to set the table for themselves in terms of raising expenses, changing grace periods, and limiting available credit. These reactions are related directly to two of the main provisions of the bill.
The headline provision of the bill is aimed directly at restricting issuers’ ability to raise interest rates in an unchecked fashion on existing balances. The restrictions are tighter on fixed accounts so credit card companies are responding by moving their fixed accounts to variables. Chase and Bank of America have already sent notices out to many of their fixed account card holders notifying them of the change to variable accounts. Another reason for the move to variable accounts is that interest rates in general are at cycle lows and can’t go much lower. The switch away from fixed accounts will allow issuers to raise rates immediately should benchmarks start adjusting higher. Issuers are also expected to increase the margins that they charge above the benchmarks prior to the provisions taking effect.
Many credit card holders, in addition to their interest rates going higher, are also getting squeezed by the increased minimum payments and other changes such as the elimination of grace periods on purchases. Particularly galling to credit card holders is the explanation of higher minimum payments as a method of getting holders to pay off their balances more quickly as increases in rates and fees tack more to their balances each month.
One of the other changes deals with treatment of no interest balance transfers. Historically, when a consumer engages in a balance transfer offer and then makes purchases on the card at the regular interest rate, any payments in excess of the minimum payment are directed toward reducing the balance which is not being charged interest. The net result has been that interest accrues on the purchase balance until the balance which was transferred in is paid in full. The new bill changes this by directing credit card companies to apply excess payments to the balance subject to the highest interest rate.
Issuers have reacted to that change by tightening terms on zero interest balance transfers considerably. Usually a year in duration, the transfers are typically offered for only six months and will be much tougher to get approved. Secondly, balance transfer fees are going up from the 3% area to as high as 5%
While the Credit Card Act was designed with positive intentions, the loopholes in its design have allowed credit card companies enough time to make everything more expensive for their card holders while pointing the blame at policymakers for forcing them to do it. Senator Charles Schumer, realizing too late that consumers were going the pay a steep price for the sloppy implementation of the bill, has been asking the Federal Reserve to step in to stop the issuers from making a mockery of the bill and the politicians that passed it, including those in the Obama administration that pressed hard for its passage. The Fed has declined to acquiesce to Schumer’s pleas. It’s not a surprise, considering that they’re all bankers.

As credit card issuers continue to raise fees, interest rates and payment requirements a growing number of struggling card holders are being force to consider options for debt relief. For many, the choice can come down to two options; bankruptcy and debt settlement. Each has advantages depending on the personal circumstances of the consumer. Let’s take a look at bankruptcy first:

The most common bankruptcy venues utilized by consumers are chapters 7 and 13. Chapter 7 is a liquidation of assets and was an extremely popular means of debt relief prior to the reform act of 2005, known as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The act effectively made it difficult for consumers to opt for liquidation of assets, instead forcing them toward Chapter 13 filings. The challenges to filing for a chapter 7 include means testing, higher fees and increased costs and risks for those assisting consumers with the filing.

Should a consumer be granted a chapter 7 filing, they cannot file again for eight years and are limited in filing for other legal remedies for several years. As before the passage of BACCPA, the filing stays on the consumer’s credit report for ten years. Other disadvantages are that the filing is a public record and can be accessed by anyone with interest and that bankruptcy filings are posted in local papers for the perusal by neighbors and other members of the local community. Another affect of filing bankruptcy is that many employers now check the credit history of prospective employees which could have an influence on future employment potential for the consumer.

Chapter 13 filings, which now make up the bulk of bankruptcy filings, are considered “wage earner plans” where the debt amount is reduced based on the consumer’s ability to pay, and a plan is set up so that consumers pay their debts in three to seven years. The repayment plan is often overseen by an official of the court who can dictate consumers’ spending while they’re in the plan. As with Chapter 7, Chapter 13 filings go on a credit report, are matters of public record, and are available for review by anyone, including employers.

The difficulty and resistance to the invasiveness of chapter 13’s is evidenced by the exceedingly high percentage of consumers that enter bankruptcy workout plans and then don’t complete them. A recently published white paper by the United States Organization for Bankruptcy Alternatives suggests that the completion rate is much lower than other debt relief options with only 20% to 25% of consumers making it through the workouts in their entirety.

Bankruptcy as an alternative for most consumers has become much more limited since BAPCPA was passed in 2005. Estimates are that as many as 800,000 US households have been prevented from filing bankruptcy in the last few years since the bill’s enactment.

Consumers must also go through counseling services (regardless of whether or not they enroll in debt management programs) prior to filing for bankruptcy. The National Foundation for Credit Counseling estimated that their members provided 1.26 million education sessions for bankruptcy in 2007.

The best representation of what debt settlement has to offer was recently released in a study on the debt relief option out of Southern Methodist University. In the words of the team which conducted the study, debt settlements “…create the greatest consumer welfare of any approach.”

The study, which covered 4,500 randomly selected consumers, found the following:

1) Cancellation rates of 60% over two years were much better than the speculated rate of 85% within one year. In fact, that rate is similar or better than other subscription based service industries, such as mobile telephone and cable television companies, which have Better Business Bureau certified members. The 40% of debt settlements being seen through to completion is almost double the amount of consumers that complete chapter 13 workouts.
2) Debt settlement offers as a rule came in under 50% of the original balance of debt, an improvement over the 60-60 (60% percent of debt balances paid off in 60 months) rule and other forms of debt relief, generating significant consumer benefits.
3) Debt settlements can include credit cards, department store debt, unpaid medical bills, unpaid utility bills, and many other forms of unsecured consumer debt.
4) Debt settlement provides immediate relief to consumers, reducing payments on all debts in process by approximately 50%.
5) Balances are typically paid off within 48 months, one to two years faster than bankruptcy workouts.
6) Debt settlement has an increasingly higher value to customers with higher account balances and higher total debt, potentially saving millions of dollars for consumers when compared against the full payoff of balances by making minimum monthly payments.
7) Once “fair share” payments are taken into account for bankruptcies and credit counseling fees payments for a consumer account can exceed 29% of the consumer debt, levels which the study calls “exorbitant.”

Other benefits of debt settlement accrue from what is not included. Debt settlements do not include:

* The filing of a public record, accessible to anyone that cares to take the time to file for it
* The filing of public notice
* A bankruptcy on your credit report for up to ten years
* An official of the court overseeing your spending

Neither form of debt relief is the perfect answer for everyone but indebted consumers are increasingly finding that debt settlement can provide optimal results without the disadvantages of filing bankruptcy. Be sure to consult a professional with experience in both solutions to determine which one is the best for you.

As the first phase of The Credit Credit Card Accountability, Responsibility and Disclosure Act (the Credit CARD Act) goes into effect credit card issuers continue to add fees and increase rates wherever possible. The latest new fee is being added by Citigroup, which is instituting a $30 annual fee on some current credit card accounts in an attempt to offset limitations imposed by the new bill. The move follows the chorus of warnings from the banking industry, which has repeatedly said that they would be forced to spread risk management and other expenses across the spectrum of their card holders due to restrictions on singling out their highest risk borrowers. The new laws include limits on interest rate increases on existing balances, better disclosure, and restrictions on late payment related interest hikes.
Annual fees are usually associated with reward cards that offering points and discounts for airlines miles and the like. With the advent of competition with new issuers In recent years, the major card issuers have been reluctant charge fees for non-reward based cards for fear of losing market share to cards with no or low fees.
Citigroup’s initiative to charge annual fees comes at a time when all issuers are re-working their business models to adapt to the new laws, compensate for increasing charge off losses, and to figure out new ways to generate income from their card holders. The early actions have included raising interest rates and fees, weakening or eliminating rewards programs, reducing credit lines, and closing accounts.
“We have adjusted pricing and card terms for some customers as part of our regular account reviews,” said Samuel Wang, a Citigroup spokesman. “These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit. As part of this change in terms, a small number of Citi customers may be notified of an annual fee.” The implementation of their annual fee, a direct response the new bill and to the politicians that passed it will be gauged with great interest by other issuers.
There is a degree of experimentation in imposing the annual fee as Citi is offering to waive the it on some accounts if, for example, a holder averages $200 per month in charges over a one year period. Other variations include a higher annual fee to certain holders and the allowance to opt out by paying off the outstanding balance and closing the account.
Peter Garuccio, a spokesman at the American Bankers Association, an industry trade group, said, “Annual fees are one way that card issuers can reconfigure their card portfolios and re-price their products” to make adjustments to the new credit card legislation. While they may be watching Citi with great interest and contemplating their own annual fees, other issuers were not interested at all in talking about their intentions. Most public statements from other issuers refer to “assessing new regulations” or “no comment”.
It could be that consumer protections included in the Credit CARD Act will arrive too late for card holders who are already struggling with their payments. Issuers were raising rate and fees prior to the passage of the act and have continued their actions since its passage. Higher minimum payments, higher fees, and interest rate hikes put on the accounts of those least able to afford them will force card holders to seek debt relief options to help them get out from under their accumulated debt. A recent study just out from Southern Methodist University found that of the choices available, debt settlement provided the most benefits to consumers. An immediate reduction of 50% in monthly payments on accounts included in a settlement as well as steep reductions in balances owed are providing consumers with a proven path out of debt. Typically, the accounts are paid off within 48 months, a much shorter time frame than the twenty five years or more it would take for a card holder who is just making monthly minimum payments.

One of the mysteries of home loan modifications is how each lender treats the debt ratios of the homeowner. While lenders do not make the information public, law firms in the course of executing hundreds modifications with lenders have become familiar with acceptable ranges at each one. The knowledge of what lenders are looking for in terms of these ratios prior to starting the process can make the difference between the relief of getting a home loan modification and  the fear of facing foreclosure.
There are actually two debt ratios that figure in to the loan modification process. The first is the ratio of the mortgage payment which includes taxes, insurance, and HOA dues, if applicable, to the homeowner’s gross monthly income. Under the guidelines of the Obama administration’s Making Home Affordable, the ending target for the ratio is 31%. The standard of each lender, in terms of this ratio, will vary but will generally be close to that of the government program.
The second ratio, which often determines whether a loan modification is approved or not, is overall expenses, including the mortgage payment, as a ratio to gross income. Lenders look very closely at this ratio to determine whether the homeowner will be at risk of slipping back into default even after the modification lowers the monthly payment. In fact, homeowners can be well under the guideline standard for the income to housing debt ratio but end up with a non-approval due to a high number for the income to total debt ratio. It should also be noted that a homeowner can get a non-approval for a loan modification if either ratio is too low due to the hardship requirement imposed by both the government and private lenders.
If the total monthly debt payments of a homeowner include obligations toward unsecured debt, a debt settlement can play a significant role in bringing the ratio to a level that fits within a lender’s parameters. For the total debt to income ratio, acceptable ranges can vary widely but generally fall within 38 to 45%. The administration‘s guideline allows for this ratio to go as high as 52% but in any loan modification the lender always has the final say.
While a debt settlement has a variety of benefits, the reduction of the monthly payments associated with all debts rolled in to the settlement can have a material effect on the success or failure of the loan modification process. Because the typical reduction in payments is approximately 50%, a homeowner that that may be carrying too much in the way of debt payments can bring that ratio back in line immediately by initiating a debt settlement.
Here’s how it would work:
* Homeowner’s gross income is $7,500 per month.
* Mortgage payment is $2,450 for a housing to income ratio of 32.6%.
* The homeowner is carrying about $50,000 in unsecured debt. The minimum monthly payment on all accounts is $1,450 leaving the total monthly payment on all debt at $3,900.
* The ratio of total debt to income is 52%, much too high to get approval for a loan modification.
* By initiating a debt settlement, the homeowner immediately cuts the payment on unsecured debt down to $725 per month.
* The new ratio on total debt to income drops to 42.3%, within the acceptable range of approval for the lender.
In this example, the homeowner would receive receive further relief with the approval of the loan modification which, combined with the debt settlement, would reduce payments by well over $1,000 per month. An experienced attorney can synchronize the debt settlement and the loan modification to provide other benefits as well including timing the payoff of settled accounts to provide additional cash flow and the re-building of credit scores.

In reaction to the passing into law of The Credit Card Accountability, Responsibility, and Disclosure Act (aka The Credit CARD Act), credit card issuers are raising rates, fees, and charges prior to the phasing in of the acts provisions beginning in August. Reaction to the bill has been swift as banks are notifying card holders that their fixed accounts are being switched to variables, grace periods on purchases will no longer apply, and that annual fees are being reinstated. Among the most severe of the increases is Chase’s hike of its minimum payment on balances to 5% from the standard 2%.
For card holders targeted by the hike, that increase will have an immediate and drastic effect on already stretched budgets. For those carrying substantial balances it could be devastating. For example, for a card holder with carrying a total of $40,000 the current minimum payment is currently about $800. With Chase’s new minimum, that payment will go up to $2,000 per month. With other options, like a refi to pay down the balance likely to be unavailable, a card holder still has a couple of choices on how to handle the increase.
The first option is to transfer the balance away from Chase. Balance transfers can have a lot of traps for card holders but, with a little bit of homework, can provide a solution which can take care of the minimum payment issue and save thousands of dollars in interest payments. Here’s a checklist for getting the most out of a balance transfer:
* Look for a long lasting low interest or interest free deal – With the major issuers raising fees and rates, there will be others offering deals looking to attract new customers. Be sure to go through the fine print to see exactly how long the deal lasts and if there are conditions under which it can be changed.
* Make sure that the balance transfer fees on the receiving end are reasonable - These fees are increasing as well at many issuers. A deal that looks great can get expensive quickly if the balance transfer fees are high. Many of the majors have already raised this fee to 4 or 5% of the transfer.
* Get familiar with the payment hierarchy on the receiving account – You getting a deal on transferred balance but additional purchases on that account will probably be treated differently. Many issuers will allocate monthly payments toward reducing the no or low interest balance on the account while letting the balance of purchases made on the card increase. In other words, if you make a $1,000 in purchases and write a check for a thousand when you pay your bill, your transferred balance will be reduced by a thousand while your purchase gets charged interest. If that situation repeats for a few months, you’ll be paying much more interest than anticipated. If your new account is going to treat purchases in this manner, consider making purchases with a different credit card to maximize the benefits of the new account.
* Prioritize your payments - If you get a low or no interest deal, assess the other accounts where you’re paying interest. Prioritize payments toward the ones with the highest interest rates to pay them off faster.

Times being what they are, if you’re trying to transfer a balance but carry a low credit score you make have difficulty finding a deal that makes sense. If you know that you’re not going to be able to keep up with the minimum payment increase at Chase, consider your options for a debt negotiation. There are many companies offering debt negotiation so be sure to enlist a law firm with experience and a track record of successful solutions. Entering into a debt negotiation requires an assessment of your total financial picture so, in addition, insist on working with a firm that takes consideration of your circumstances in order to get optimal results.
Your immediate benefit will be an approximate cut of 50% on your payments on the account with a long term benefit of paying off your debt much faster than if you were just to continue making minimum payments. A debt negotiation can also involve multiple accounts so if you are struggling with more than just your Chase account, you can include other credit cards, department store debt, signature loans, and other unsecured accounts. The same percentages apply, giving you a payment cut of 50% on all accounts included as well as a reduction of 40 to 60% on the amount of the collective balance.
As many credit card companies continue to make it more difficult for their card holders with higher expenses and interest rates, it is extremely important to look for solutions to mitigate those costs as much as possible. In the case of the pending increases on accounts being held with Chase, these solutions should be acted upon sooner rather than later.

Interest rates with seemingly nowhere to go but up and recently passed legislation by Congress are threatening to turn fixed rate credit cards in to a dying breed. According to bankrate.com, approximately two thirds of credit cards outstanding currently carry variable rates, a number that is expected to grow quickly as card issuers switch their fixed accounts over to variables. Fixed rate cards, even for promotional purposes, now account for only one in ten of the offer letters mailed out to potential new card holders according to Mintel Comperemedia, a database and media monitoring firm from Chicago. That’s a 75% drop from the total of fixed card offerings in 2008.
Part of the reason for the move away from fixed rates is the current low interest rate environment. With the prime rate at a low of 3.25% and indexed to the Fed Funds rate of .25%, interest rates in general can’t go much lower but have plenty of room on the upside. With all challenges facing credit card issuers, they are not about to allow card holders to borrow money at below market interest rates should the Fed start raising their rates in the near future. Two of the biggest card issuers, JPMorgan Chase and Bank of America have already notified existing customers of the switch away from fixed to variable rates.
Issuers have always played interest cycles to a degree, prioritizing variable rate cards when interest rates are low or on the rise and then increasing rates to their card holders during the up cycle. When rates peak the issuers switch the variables over to fixed interest accounts to lock in above market rates on their card holders’ balances.
The current sense of urgency for issuers to switch to variables now is due to the passing of The Credit Card Accountability, Responsibility, and Disclosure Act (aka The Credit CARD Act) by Congress in May and the recent formation of the Consumer Financial Protection Agency to enforce its regulations. The provisions of the act will phase in starting in August and will be in full force by the end of February 2010. The provision of the act that is providing the push for issuers to switch their fixed accounts to variables now places limits on interest rate increases for fixed accounts but doesn’t limit hikes on variable accounts. One of the limitations is the requirement to give a forty five day notice to card holders prior to an increase in rates. Variables can be adjusted immediately upon rate increases on the index to which they’re indexed.
Another limitation imposed by the CARD Act is a restriction prohibiting increases on existing balances unless the customer is 60 days late on a payment. This restriction has raised the ire of the issuers who have been saying that not being able raise rates on their riskiest borrowers will force them to raise rates for everyone. The overall effect will be likely be generally higher rates and lower credit limits across the board for holders, not exactly what was advertised when politicians were pushing the bill through to its signing by the president.
For consumers, the best action to take now would be to start shopping around to see what is being offered by those companies that stick with fixed rates for competitive advantage and to attract new customers. For consumers struggling to keep up with payments now, those issues will only intensify as rates and fees increase between now and February 2010. Other increases that will hurt card holders include those on balance transfers, minimum payments, and the elimination of grace periods for interest payments. When shopping, be sure to read the small print to make sure you know what you’re getting and that there won’t be any surprises down the line. With costs on the increase at most issuers, a little bit of work, research, and the right deal from an aggressive issuer could save thousands of dollars.
Resources: Debt Settlement

As debt settlements, bankruptcies, and the unpopularity of credit card accompanying continue to increase, the Obama administration reiterated its support behind legislation in Congress that would put restrictions on the imposition of higher fees and interest rates on consumers. Following on promises made during his campaign, President Obama met with top brass from the largest credit card issuers in the country to push them toward action that would reduce abusive practices.

The meeting at the White House occurred as the House of Representatives worked to finalize new curbs on credit card fees. In addition to the curbs, senior White House officials pressed for a provision that forces require credit card companies to prioritize payments so that the first money to come in from a consumer is applied to debt carrying the highest interest rate.
In a separate action on Wednesday the House Financial Services committee passed a bill that would decrease and/or limit a variety of fees and penalties currently being charged by credit card companies. The bill was sponsored by Rep. Barney Frank, D-Mass., and Rep. Carolyn B. Maloney, D-N.Y
Most of the provisions, restrictions, and limits were already adopted by the Federal Reserve last year but there are also some new rules being dictated to the industry. The marketing of credit cards to minors would be prohibited. There are some new transparency rules for credit card companies requiring additional information for regulators. The last rule, and probably one that consumers going through debt settlement wish was in place a few years back, allows for credit cards holders to set lower credit limits than what the card issuers are offering. One specific benefit of the rule would be that parents could impose their own spending limits on credit cards they provide to their children.
The bill could reach the floor of the House where hopes are that it will fare better than a similar bill passed by the Senate Banking Committee three weeks ago. That bill barely passed with all Republicans on the committee in opposition. Pressed by credit card industry lobbyists, Senate Republicans will attempt to block that bill but public sentiment and pressure from the White House are likely to influence its passage.
Senate Republicans, industry executives, and lobbyists contend that passage of these bills is redundant due to the fact that the Federal Reserve has already adopted a series of similar restrictions that will go into effect next year. Another of the group’s contentions is that the passing of the legislation could further reduce lending in the face of tighter credit card company restrictions and the inability of consumers to obtain financing through other means. In reality, it could be that real agenda is to delay the inevitable to allow for fees and high rates addressed in the bill to be charged for as long as possible.

According to an article released in this week’s edition of BusinessWeek, defaults and past due payments on credit cards set a new record in April with the Fitch Prime Credit Card Chargeoff Index rising to 8.89%. It was the second consecutive month with a record high in defaults and chargeoffs, eclipsing the old record of 8.41% set in March by almost one half of a percentage point. Michael Dean, a managing director for Fitch Ratings said after reviewing the numbers, “Chargeoffs and delinquencies will likely continue climbing over the near term.”
Chargeoffs on credit cards have risen 18% since the end of 2008 and are now 44 percent above the levels reached in April of 2008. While Fitch publicly states that they expect chargeoff rates to reach 10% by next year, at the current pace the default and chargeoff rate will be in the low teens by that time.
The Fitch Prime Credit Card Chargeoff Index, which tracks receivables greater than 60 days past due, has hit a record every month of 2009, posted its fourth-consecutive record level rising to 4.44 percent in April. Over the last five months delinquencies have risen 35 percent. Anyone looking for a silver lining in the numbers could take solace in the fact that the increase is the smallest monthly increase in the last five months. A slowdown in the rate of increase was also noted in the Fitch Prime Credit Card Chargeoff Index. While hopeful that the rates of increase will continue to decelerate, Fitch analysts remained cautious due to previous experience. They were very clear in expressing that it is also entirely possible that the rate decreases could be explained by adjustments for seasonality, since Fitch usually observes a decline in delinquencies at this time of year.
The chargeoff and default numbers have been directly correlated with the deteriorating economy, a relationship that is expected to continue. Correlated to both chargeoffs and the economy are the numbers of consumers seeking debt relief, whether in the form of debt settlement, bankruptcy, or other options.