Rates, Fees Edge Higher Ahead of New Reform Laws

Some credit card issuers have raised interest rates, minimum payments due and lowered credit limits ahead of new laws that take full effect in February 2010.

These findings, according to Consumer-Action.org’s 2009 Credit Card Survey, reflects complaints by card users, including those with good credit who pay on time.

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act will give consumers more time and options when card issuers seek to raise rates, fees or change policies. One new provision already became official extends the billing grace period from 14 to 21 days.

The annual percentage rate, or (APR) is what banks and card companies charge consumers for interest on balance owned over the course of a year. Credit card consumer agencies and analysts say they are seeing card issuers raise rates ahead of the new reform, altough rates have been steadily rising on average for months in the wake of the deep economic downturn.

The APR charged on all careds has gone up by 500 basis points, or five percentage points, from March through August of this year. Between March and June, the average APR grew by 3 percentage points, and then by five percentage points during the last two months, according to Consumer Action’s 2009 Credit Card Survey, at ConsumerAction.org.  Before this sharp rise, the average APR would jump no more than two percentage points, before retracing, during similar timeframes before 2009.

According to Consumer-Action.org’s news release: “The organization used this year’s survey to screen for practices that will be banned (or limited) in 2010 when the Credit CARD Act takes full effect. We found that nearly all surveyed issuers have at least one practice that will be prohibited or limited by the new law, including anytime any reason changes in terms, payment allocation, early payment cut-off times on the due date, penalty rates and penalty fees, and universal default.”

Here’s a quick review of other findings in the survey:

Prime Rate falls, but not APRs
Cardholders are not receiving the full benefit of the drop in Prime Rates. The average variable interest rate on surveyed cards is 13.20 percent, about one percentage point lower than last year (14.25 percent in ’08), while the Prime Rate has fallen two full percentage points.

From Fixed to Variable
More than half (54 percent) of the surveyed cards with a fixed interest rate in ’08 now carry a variable rate. This year, only five* surveyed cards had a fixed interest rate. Thirteen cards had a fixed rate in the 2008 survey.

Fees are Upward Bound
Late fees are up 9 percent on average in ’09. While the top late fee remains at $39, the average fee has increased from $25.90 to $28.19. Balance transfer fees are higher — some were hiked during the survey and the rest afterwards — to as high as 5 percent. Twenty-four cards in this year’s survey charged a 3 percent balance transfer fee, compared to 11 cards last year. In 2009, 11 cards charge no fee to transfer a balance (up from five cards last year).

Consumer-Action.org urges consumers to visit their card issuers’ websites for the very latest data because “since the close of our survey, rates and fees continue to change rapidly.”