Credit Card Rates Rise Before Consumer Protections Are Implemented

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If you received a letter in the mail about rising interest rates, you are not alone. I received that letter too.

I called American Express Blue to inquire what this was all about. The customer service agent said my fixed 10.9% interest rate will now become a variable interest rate and will increase to 15.24&. That’s a 30% increase! I was told that I was not being punished for one too many late fees which I have successfully talked my way out of. It was just a “general business decision across the board,” the customer service representative told me.

I, and many others, received the news just days before new safeguards for consumers are to take effect. Congress passed credit card reform in May as an attempt to protect consumers from abusive credit card practices.

Starting Thursday, consumers will have new rights:

  • 21 days to pay their bill before interest is applied.
  • A 45 day notice before an interest rate increases. That is up from the previous 15 day suggestion.
  • And most significantly, consumers can reject, or opt-out, of their interest rate increase.


  • But the credit card companies beat the deadline.

    Since I received my notice before the Thursday marker, I was told I was unable to opt-out of my interest rate increase. That leaves me with a new 15.24% interest rate.

    Consumers could choose to close their account and open a new credit card. But that could be costly too.

    The Pew Charitable Trusts’ Safe Credit Cards Project found that interest rates for new credit cards have also increased – 2 percent over the past 6 months – from 9.99% to an average of 11.99%.

    Nick Bourke, Manager of the Safe Credit Cards Project says “consumers are gaining a lot of new important rights under this law and what we’re seeing is credit card companies trying to defend profitability while raising interest rates while they can.”

    Bourke said interest rates are rising as a key federal interest rate for lending is at an all time low.

    Bourke compared it to the oil business. “It’s sort of like if the government released a bunch of oil on the market from the Strategic Petroleum Reserve and then gas stations jacked up the price for consumers,” Bourke said.

    But Peter Garuccio, Spokesperson with the American Bankers Association, said the lending rate is not the key indicator for credit card prices. Instead, he said, it is charge-offs. Charge-offs is the money the company knows they will never receive from the consumer.

    “Charge-off rates of credit cards is approaching 10 %, it’s the highest it’s ever been and as those losses go up, the cost of making credit available goes up. All of us end up paying a little bit higher interest rate because of that,” Garuccio said.

    Bloomberg News reports that the charge-off rate fell for the second consecutive month in July to 9.7%. It’s’ the lowest it’s been since December 2007.

    Garuccio admits that the new reforms have led to new efforts to make money.

    “The reforms that take place Thursday will impact the ability of card issuers to manage their risks and price their product accordingly,” Garuccio said.

    Credit card companies continue to see profits. For example, American Express profits fell 48% compared to this time last year, but the company still made $342 million in the second quarter of 2009.

    JP Morgan Chase’s credit card division lost $800 million last quarter, but losses were offset by a $27 billion profit in company’s combined business.

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