With all the talk lately about credit card issuers raising rates, and those card issuers doing all they can to maximize their profits before the new rules take effect, it should come as no surprise that many are moving to variable rates.
Bank of America, JPMorgan Chase, Discover Financial Services, and Captial One have already switched a portion of their accounts to variable rates, which are based on a margin over and above the U.S. Prime rate.
Already, about 66% of all credit cards are on a variable rate schedule, a number which is expected to rise to 75% before long.
The only reason some card issuers are sticking with fixed rate offerings is competition. They hope to stand out from the crowd and gain more business by offering their customers some security with regard to interest rates.
What does this mean to you as a credit card holder? No notice.
Under the new laws, cardholders must receive 45 day's notice that a fixed interest rate is going to change. This portion of the law goes into effect on August 20 and replaces the previous rule that gave only 15 days' notice.
There is no such restriction - not even the old 15 days - if your card is issued at a variable rate. Thus, you need to check your statement each month to see what you're paying.
Using a variable rate also removes another protection included in the new law: That of maintaining the initial rate for at least one year. Again, if the card is a variable rate, it can change at any time, and with no advance notice.
However, if you've taken advantage of a promotional rate, you should have a little leeway. Apparently the rule that says Promotional Rates must last at least 6 months will remain in effect, even for variable rate cards.
Financial analysts warn that interest rates across the board will continue to rise. Your fixed rate credit card issuers may be required to give 45 days' notice, but if you're carrying a large balance, you will still feel the pinch when interest rates rise and more of your payment is applied to interest than to balance reduction.
Contrary to Washington's plea for consumers to spend more, and thus charge more, smart consumers will instead work to pay off credit card balances and become debt-free as fast as possible. This is not good news for retailers, especially those small businesses who have been forced to close their doors as consumers struggle to deal with the new economy.
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