Feds plug loophole that prevented credit card rates from falling

Credit CARD Act wording made consumers wait for beneficial changes

By Connie Prater

Credit card users who get interest rate reductions can reap the benefits of their lower rates immediately rather than waiting 45 days, under rules issued by the Federal Reserve.

The Fed fixed a loophole caused by wording within the Credit CARD Act of 2009 that, if left uncorrected, would have meant some consumers lucky enough to get interest rate reductions would have had to wait 45 days to enjoy the benefits. The credit card reform law, signed May 22, 2009, by President Obama, requires credit card issuers to give consumers at least 45 days' advance notice of significant changes in their credit card terms.

The intent was to give consumers plenty of notice of credit card rate increases or fee hikes. The extra 45 days gives them time to comparison shop, find cards with better terms, use balance transfer credit cards and, if they choose,  opt out of the changes to their old accounts.

However, the 45-day requirement also would have applied to cardholders who managed to win interest rate cuts from their credit card lenders. Under the wording of the CARD Act, they would have had to wait 45 days, too -- which is not what lawmakers intended.

In final credit card law guidelines published Jan. 12 by the Fed, the loophole was closed. Regulators clarified that reduction of "any component of a finance or other charge" does not require advance notice.  

The 45-day notice provision of the credit card reform law took effect Aug. 20, 2009. The bulk of the credit card law measures are scheduled to take effect Feb. 22, 2010. That's when credit card issuers will be restricted from increasing interest rates on existing account balances -- except in a limited number of circumstances. (See Credit card reform law and you.) 

The problem with the CARD Act wording became apparent in November 2009, when a lawmaker said during debate about speeding up the start of the law that he had gotten complaints from voters about the loophole. Some credit card issuers were telling consumers they could not lower their interest rates because of the new restrictions in the new law. Rep. Barney Frank, chairman of the House Financial Services Committee, pledged to work to fix the problem.

Federal regulators, who must review the law and write detailed guidelines for how banks and credit card issuers should implement its provisions, made the fix effective Feb. 22.

See related: Credit card reform law and you, Credit card issuers: Sorry, new law says we can't cut your interest rates, Switching credit cards? It may cost more than you think, Consumers gain right to opt out of credit card changes 

Published: February 2, 2010

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