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Credit card interest rates unchanged, stay near record highs

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CreditCards.com's Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 14.72%
14.72%
14.42%
Low interest 11.98%
11.98% 12.18%
Cash back  12.48%
12.48%
12.63%
Balance transfer 12.90%
12.90%
12.88%
Business 12.91%
12.91%
12.96%
Student
13.42%
13.42%
13.96%
Airline 14.30%
14.30%
14.30%
Reward  14.36%
14.36%
14.70%
Instant approval 15.99%
15.99%
15.99%
Bad credit 24.95%
24.95%
20.32%
Methodology: The national average credit card APR is comprised of about 100 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Source: CreditCards.com
Updated: 1-26-2011
The average annual percentage rate (APR) on new credit card offers held steady at 14.72 percent on Wednesday, according to the CreditCards.com Weekly Rate Report. This marks the fifth week since the beginning of December that rates haven't changed.

Although rates remain flat for now, they are still near record highs, according to CreditCards.com database of card information. The national average has hovered above 14.6 percent for the past 14 weeks, reaching a record high of 14.78 percent in mid-November. Prior to last October, the national APR average had risen above 14.6 percent only once in more than three years.   

No movement from banks or Fed
We found no APR changes for any of the cards in our database this week; however, we saw that a few banks adjusted promotional offers on their cards. Citi, for example, shortened the length of its introductory 0-percent balance transfer offer on its Platinum Select card from 21 months to 18.

Meanwhile, the U.S. government decided to leave interest rates alone this week as well.  The Federal Reserve announced on Wednesday that it would leave its key lending rate (called the federal funds rate) at a range of 0 percent to 0.25 percent. That decision means that the prime rate will stay at 3.25 percent. The prime rate is an interest rate index to which APRs of variable-rate credit cards -- - which make up the vast majority of currently held cards and new card offers in the United States -- are tied. 

Wednesday's announcement means that if your card's APR changes, it will be the bank's doing, not the Fed's. The Credit CARD Act of 2009 allows APR changes based on Fed moves to be passed on to consumers immediately. Beyond that, the law limits the conditions under which lenders can raise rates. If a cardholder makes a major mistake -- say, by paying 60 days late on an account -- then lenders can hike the borrower's rate. However, if they choose to hike a cardholder's rates for another reason, the CARD Act says issuers must provide 45 days' advance notice.

Interest rate cap proposed
If some lawmakers had their way, the CARD Act would have also included a hard cap on interest rates. Such a measure was discussed, but was not part of the final bill. However, one lawmaker is trying again to make the cap happen.    

For the third time since 2008, Rep. Maurice Hinchey, D-NY, introduced a bill last week that would cap interest rates on credit cards, including cards for consumers with average or poor credit.

The proposed law would require credit card companies to cap interest rates at 15 percent, which is just slightly above the national average. Right now, only credit unions are required to cap interest rates on cards. The law would also allow lenders to petition for higher rates, but only "under special circumstances."

If passed, the Interest Rate Reduction Act would compel the majority of issuers to lower rates on at least some of their cards. Among the 100 credit cards that CreditCards.com tracks, 23 have interest rates above 15 percent for consumers with excellent credit and 32 have interest rates above 15 percent for consumers with less-than-stellar credit.

In a statement introducing the bill, Rep. Hinchey pointed to cards with excessively high rates as a justification for the proposed legislation. "Many hardworking Americans are using credit cards to make ends meet in this recovering economy, but credit card companies are finding new ways to squeeze the middle class despite significant reforms in the last Congress," said Rep. Hinchey in the statement. "Credit card companies are charging interest rates as high as 50 percent, trapping millions of Americans in a spiral of debt."

Among the cards that CreditCards.com tracks, only one card has an interest rate that high. The First Premier Gold MasterCard features a flat interest rate of 59.9 percent. The next highest APR among the cards in the CreditCards.com database is 26.9 percent.

Members of the banking industry have previously stated their strong opposition to the legislation, arguing that caps on interest rates will hamper banks' abilities to compete in a free market. However, proponents of the bill point to the relative success of credit unions, which have had a cap of 18 percent on credit card interest rates for nearly 30 years.

Regardless, experts say that the bill is unlikely to gain traction in the current Congress and will likely die in the House. Similar bills have failed in the past, and a spokesman for Rep. Hinchey told the Wall Street Journal on Thursday that the political atmosphere that previously pushed the legislation to the bottom of the docket hasn't changed.

See related: Credit card lending standards keep tightening, Fed report says, Credit card reform arrives in the form of the Credit CARD Act, Calculator: How long will it take to pay off your credit card balance?Credit card rates: interactive graphic on APR changes

Published: January 26, 2011


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