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Credit card issuers: Sorry, new law says we can't cut your rates

Law preventing sudden rate hikes turned on its head; lawmakers prepare fix

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See updated story: Feds plug loophole that prevented credit card rates from falling

Credit card issuers are using the new credit card reform law against consumers, claiming that it ties their hands so tightly they are now forbidden from offering interest rate cuts that benefit consumers.

QUICK RATE CUTS IN A FIX

Congress is trying to fix an unintended consequence of the credit card reform act signed into law this spring:

Card issuers say that while it was intended to force 45-days' advance notice of interest rate increases, the same notice is also required for any rate cuts.

The federal Credit CARD Act of 2009 requires that credit card issuers give 45 days' advance notice to consumers whenever there are significant changes to the terms of their accounts. Lawmakers who drafted the law wanted to give consumers enough lead time on potentially harmful credit card changes to shop around and find alternatives. The problem, however, is that the wording of the new law does not allow for quick responses on favorable changes in terms -- such as getting an interest rate reduction. 

A fix in the works
"I don't think it is our intent to have consumers wait 45 days for a reduction," U.S. Rep. Jeb Hensarling, a Texas Republican, said Wednesday during debate in the U.S. House of Representatives on a bill (H.R. 3639) to speed up implementation of some aspects of the Credit CARD Act. The House voted unanimously (427-0) to include an amendment sponsored by Hensarling to clear up the latest confusing point in the credit card law. 

Hensarling said he discovered the problem with APR reductions after he was contacted by one of his constituents in Texas who had received a credit card offer in the mail advertising an APR lower than the consumer's existing card rates. According to Hensarling, the consumer called his existing credit card company and said, "I want to stay with you, but will you match this interest rate?" A customer service representative for the credit card company, which Hensarling did not identify, told the cardholder the Credit CARD Act prevented the issuer from immediately lowering the rate.

"'We would like to match the rate, but we cannot do it for 45 days because of a law enacted by Congress,'" Hensarling quoted the representative as saying.

He added, "Language in the underlying bill is being interpreted by some credit card issuers, and the language is sufficiently ambiguous for some companies that they do not feel they can lower interest rates or lower fees."

Matthew Towson, a spokesman for Discover, said he encountered the interest rate reduction roadblock with his own Discover credit card. Towson said Hensarling's constituent most likely received a promotional offer advertising a low introductory APR and sought to negotiate better terms.

"Under the current rule that went into effect, the current issuer would not be able to do that. They have to give notice to the card member of the change in terms, and it can't take effect for 45 days," Towson wrote in an e-mailed response.

'Unintended consequence'
Hensarling said his fix is to make it clear that "any significant change in terms solely or primarily for the benefit of the consumer" can go into effect immediately. That includes decreasing or eliminating any fees imposed on account holders. "I hope it takes care of an unintended consequence. I suspect there are others," Hensarling said. 

Rep. Carolyn Maloney, the New York Democrat who sponsored the credit card bill, supported Hensarling. "If a credit card company wanted to decrease interest rates for its customer, there is absolutely no reason to wait 45 days."

Rep. Barney Frank, chairman of the House Financial Services Committee, noted that the bill to accelerate implementation of the credit card law may face difficulty or delay in the U.S. Senate. He offered to support passage of a separate bill clarifying the interest rate reduction provision so that consumers can benefit from positive changes in terms.

Protecing credit scores
The House bill approved Wednesday also included an amendment that seeks to protect consumers' credit scores if they choose to opt out of changes in credit card terms and close their card accounts. The credit card law allows consumers to reject certain changes in terms on their credit card agreements, repay the balance of their card loans under the old terms and close the accounts. If that account is for a card that the consumer has had for a long time, closing it could negatively impact credit scores.

The measure, sponsored by Rep. Betty Sutton of Ohio, says creditors and credit reporting agencies cannot use the closure or payoff to "negatively impact" the consumer's credit score or credit report. 

See related: Credit card reform and you, Consumers gain right to opt out of credit card rate hikes, House committee: Speed up credit card law, A comprehensive guide to the Credit CARD Act of 2009, Feds plug loophole that prevented credit card rates from falling 

Published: November 5, 2009


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Updated: 12-08-2016


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