Where’s the promised credit card interest rate roll-back process?


We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Wednesday, March 3rd, 2010

UPDATE: The Fed just issued its proposed rule. Take a look. We’re reviewing it now and will update you soon with our analysis.

Under the CARD Act, starting in August 2010, banks are supposed to review the factors that led to a rate increase and reduce rates if the factors have changed. This review is required for all increases since January 1, 2009. New rules that were due by the Fed last week would detail the banks’ requirements under this provision. But the Agency missed its deadline and no rule was issued.

Connecticut Attorney General Richard Blumenthal is making waves about it.

“The Fed’s failure to meet a deadline vital to consumers facing billions in unjustified and arbitrary interest payments is inexplicable and inexcusable,” Blumenthal said. “The Fed never misses a deadline important to big banks, but it fails without explanation or apology to issue on time rules critical to consumers.”

Here’s the exact language of the law:

Section 148. Interest Rate Reduction on Open End Consumer Credit Plans
(a) IN GENERAL.—If a creditor increases the annual percentage rate applicable to a credit card account under an open end consumer credit plan, based on factors including the credit risk of the obligor, market conditions, or other factors, the creditor shall consider changes in such factors in subsequently determining whether to reduce the annual percentage rate for such obligor.
(b) REQUIREMENTS.—With respect to any credit card account under an open end consumer credit plan, the creditor shall—
(1) maintain reasonable methodologies for assessing the
factors described in subsection (a);
(2) not less frequently than once every 6 months, review accounts as to which the annual percentage rate has been increased since January 1, 2009, to assess whether such factors have changed (including whether any risk has declined);
(3) reduce the annual percentage rate previously increased when a reduction is indicated by the review; and
(4) in the event of an increase in the annual percentage rate, provide in the written notice required under section 127(i) a statement of the reasons for the increase.
(c) RULE OF CONSTRUCTION.—This section shall not be construed to require a reduction in any specific amount.
(d) RULEMAKING.—The Board shall issue final rules not later than 9 months after the date of enactment of this section to implement the requirements of and evaluate compliance with this section, and subsections (a), (b), and (c) shall become effective 15 months after that date of enactment.

So, a good idea but what does it mean exactly? If your bank said it increased your rate because of the “economy” or “market conditions,” can they wait to roll back that increase until the recession is over? That can’t be the intent of lawmakers when they crafted this language.

The rules (the ones that the Fed has not yet issued) need to take an aggressive position with the banks. Rate increases that banks issued to help them offset problems of their own making–investment losses on their credit default swaps or their “toxic assets”–should be immediately rolled back. Our economy may still be in recession but bank profits are back in full swing–higher than ever for some big banks–so at least those market conditions have changed. Rate increases based on a general or statistical increase in the risk of card defaults should also be rolled back to reduce the number of responsible card customers who were in no danger of default until their card went to 30%.

Should your rate be rolled back? Tell us in the comments or here the reason your card company gave you so we can suggest to the Fed all the kinds of rate increases that should be reversed under their new rules.

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