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45 Days to Opt Out of Credit Card Rate Hikes? Not So Fast

August 28th, 2009 · 1 Comment · Credit Cards

by Kristy Welsh

(Last Updated On: August 27, 2009)

As of Aug. 20, the new Credit Card Act requires credit card issuers to give consumers the right to cancel or opt out of certain changes in terms on their accounts.

Credit card issuers must inform card users of the right to cancel when they mail the 45-day advance notice of the change in terms. The notice must explain the steps cardholders can take to exercise their rights to cancel, including a toll-free number to call and the deadline for opting out.

However, one issue is not explained in the fine print: opting out of the new rate means the consumer can no longer make purchases with the card. In other words, if the consumer makes purchases on the card more than 14 days after opting out of the new rate, the new higher rate will apply on those purchases.

Example:

You happen to have a $700 balance on a card with an interest rate of 7%. Your bank tells you they are raising your credit card interest rate to 15%. Forget that, you tell yourself. You figure you can pay off the balance in full before the rate increases.

You call the bank and tell them that you want out of the rate, meaning you will have 45 days from the date of the notice to pay off the balance under the old 7% rate. 3 weeks later, you decided to buy a $5 meal at a fast food burger joint using that card. After all, you have 24 more days at the lower rate before the 15% rate kicks in, right? Wrong. Under the new laws, the bank will immediately start charging you 15% on your unpaid balance. Bummer.

After realizing the implications of this loophole, I’m imagining that someone in the Office of the Comptroller of the Currency (OCC), the federal agency that regulates national banks, said something like “oops”.

On August 26, 2009, the OCC issued a bulletin to banks clarifying the 14-day rule. They asked banks to include an additional disclosure in letters sent to customers who have changes in account terms that qualify for the 45-day advance notice.

Until the Federal Reserve clarifies the rule, it is important to note that OCC is requesting, not requiring, banks to inform customers about 14-day rule to “avoid unnecessary consumer confusion”.

So how did this get written into the law? According to the Fed, allowing card issuers to begin charging the higher APR prevents card users from abusing the system by going on shopping sprees before the higher APRs take effect.

Yeah, Okay. Another example of sloppy law-making (do members of Congress ever read these bills)? Perhaps the work of special interest groups? We all know the credit card industry was not happy about the reforms.

By the way, for the sake of complete disclosure, we’d like to tell you about some other gotchas about opting out of new rates:

  • Consumers cannot opt out of increases in minimum payment amounts.
  • Consumers who are more than 60 days late making payments do not have the right to reject APR increases.
  • Consumers cannot opt out of increases on variable rate credit cards, whose rates are tied to an index – almost always the prime rate. When the Federal Reserve raises interest rates, it raises the prime rate. In recent months, card issuers have reacted by switching consumers from fixed rate cards to variable rate cards.

Been caught in this sneaky little trap? Leave us a comment and tell us about it!

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One Comment so far ↓

  • Angry Consumer

    What about opting out of the rate increase, closing the account and making all payments only to be opted back in again behind your back. Its happening at Chase Bank.

    You opt out, close the account, never use the card or in my case have not used the card in 12 months. Then 3 months later they send you a revised change in the terms of the “Closed” account. Unless you opt out again and again and again it means nothing. Opting out is only good for 3 months. They apparently can raise your Margin rate at any time on accounts that are closed and have Opt Out letters sent and confirmed. WHAT IS GOING ON!!!!

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