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Credit card reform law interest rate reductions kick in -- for some

Law requires six-month account reviews and APR reductions, if warranted

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Pay close attention to your next monthly credit card statement. There might be an unexpected surprise: an interest rate reduction.

This is an example of a Bank of America notice announcing a rate reduction. Click image to enlarge.

Major credit card issuers are implementing mandatory account reviews required by the Credit CARD Act of 2009. Lawmakers drafting the credit card reform law saw that banks were hiking rates on millions of accounts in early and mid-2009 in anticipation of pending restrictions and wanted to mandate a way for consumers to get an interest rate makeover of sorts. Accounts that were hit with surprise rate hikes between Jan. 1, 2009, and Feb. 22, 2010, must now be reviewed every six months. If warranted, some accounts that qualify may get rare interest rate reductions.

"Like the other provisions of the CARD Act, issuers have moved aggressively to implement this provision and do what the law requires," said Peter Garuccio, spokesman for the American Bankers Association trade group.

Did you get a rate reduction?

Several of the major credit card issuers said customers can find out if they've received interest rate reductions required by the CARD Act from their monthly credit card statements.

Here are some tips to figure it out:

Open and read your most recent monthly statement or go online to retrieve it.

Look for the section called "Important Messages" or special notifications. There may be a statement congratulating you on your reduced rate.

Go to the "Interest Charge Calculation" section and note the rates charged on the various types of balances. Compare this to the previous month's statement for changes in the rates for all types of balances (i.e., balance transfers, cash advances and purchases).

If you're still in doubt, call your card issuer's customer service number (always listed on the back of the card or on the monthly statement) and ask if you received a reduction.

If you're unsatisfied with the amount of the reduction, ask them how they determined how much of a decrease you would receive.

How many cardholders are reaping this windfall? A Bank of America spokesman said 1 million account holders were notified in February of reductions that took effect that same month. Other issuers, however, would not disclose how many accounts were reduced. None of the issuers would confirm how much the reductions were or give a range (such as 1 to 2 percentage points). The law does not require rates to be reduced by any particular amount, and any reductions are at the discretion of the credit card issuer.

Chase, the No. 1 U.S. credit card issuer, confirmed that it is reviewing accounts. "If a lower rate becomes available for an account, we will automatically adjust for the lower rate and the customer will see the change on his or her monthly statement," according to Gail Hurdis, spokeswoman for Chase Card Services.

Rate reduction rules
Here's how it works, according to Federal Reserve guidelines issued in June 2010.

  • The first reviews were to be conducted by Feb. 22, 2011.
  • Rate reductions must be effective within 45 days of the account review.
  • Reductions are to be applied to both existing and future account balances.

However, the rate reduction notices may be bittersweet for some cardholders. Credit card APRs can differ depending on the type of account activity. Balance transfers, cash advances and purchases may each have different APRs. According to the federal guidelines, reductions must apply to the type of balance that was originally hiked. So, the rate reduction may not be useful to the cardholder if it's on a balance that is rarely or never used, such as for cash advances.

One Bank of America customer, for instance, had this note under the "Important Messages" section of the February monthly credit card statement:

"Congratulations! We have reviewed your account and as a result, we reduced your Standard Rate for Cash Advances to the Standard Rate shown in the Interest Charged Calculation section of this statement."

The cash advance rate on the account was reduced by 1 percentage point -- from 25.24 percent to 24.24 percent.

Wells Fargo declined to say how many of its customers may be impacted, but added, "A majority of Wells Fargo's consumer credit card accounts were eligible for the rate re-evaluation review," according to Lisa Westermann, assistant vice president for public relations.

Since February 2011, have you received an interest rate decrease on your credit card, without having to ask for it?

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"The exact number of those who qualified for a lower rate is proprietary."

She said rate reductions will take effect by April.

According to a Discover spokesman, rate reductions began this month and apply to both existing and future purchase balances. At American Express, credit card accounts will be evaluated "based on factors used to set interest rates offered to new accounts. Only a small segment of impacted accounts at American Express are priced at APRs above our current acquisition pricing. "We are lowering rates for this small segment of card members in our credit card portfolio," according to Desiree Fish, AmEx vice president of public affairs. AmEx customers who qualify for reductions will receive separate letters informing them of the change in March or April depending on their billing cycles. BofA said it's customers will also get separate letters in March.

A Citi spokesman did not return messages regarding its rate reduction practices. Some Citi customers, those who have the Citi Forward card, are no strangers to APR decreases. That card reduces the APR by up to 2 percentage points if cardholders stay below their credit limits and pay their bills on time for three consecutive billing periods.

Didn't get a rate cut? You still can, if ...
The CARD Act contains more than one way to get a rate reduction. Another provision of the law helps people who've been hit with penalty interest rate hikes to win their way back into card issuers' good graces by making six consecutive on-time payments. Issuers must 'cure' the penalty rates if  customers show good payment habits.

In addition, customers can always call card issuers to request interest rate reductions. (See "How to request a lower credit card interest rate" and "Script to negotiate a better credit card deal.") Some issuers will offer rate reductions as a way to keep longtime customers who are flirting with closing their accounts.& ;

Finally, rates also may be reduced (or increased) automatically on variable rate accounts tied to reductions in the prime rate.

See related: A guide to the Credit CARD Act of 2009, Feds plug loophole that prevented immediate credit card rate reductions, Feds cap credit card late fees at $25, Credit card issuers required to 'cure' penalty rates

Published: March 10, 2011



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