Interest rates keep rising as credit card reform looms

By Jeremy M. Simon

As new credit card legislation draws closer, interest rates continue to rise.

Interest rates on new credit card offers increased slightly to 13.17 percent this week, according to the CreditCards.com Weekly Credit Card Rate Report, reaching heights not seen since October 2007.

The latest rise in annual percentage rates comes as banks continue to adjust their card offers before major provisions of the landmark Credit CARD Act take effect on Feb. 22. That consumer friendly legislation will, among other things, restrict banks' ability to adjust card terms.  

As the CARD Act limits the ways banks make money off cardholders, lenders must change their strategies. "If the government takes away one avenue for rate of return, they look for other ways to generate," income, says Wisconsin School of Business professor Morris A. Davis.

Among the latest moves by issuers, Bank of America increased the APR on one of its cards, and Discover raised the top end of the APR range on one of its cards. Other terms and conditions are being tweaked as well. For example, four cards eliminated or shortened introductory balance transfer APR periods.

Those adjustments by banks are costing cardholders. For example, someone who borrowed $5,000 on a credit card today and consistently paid $150 per month at today's average interest rate would have to pay $6,259 to pay off the debt. That's $141 more than would have been required six months earlier.

Since both BofA and Discover's cards were rewards cards, that category saw rates increase this week. That category has jumped by more than a point in the past six months. 

Experts predict that the CARD Act means borrowing on plastic won't get any cheaper. Among the changes coming in February:

• No interest rate hikes in the first year after a new credit card is issued.
• No applying rate hikes to existing card balances retroactively, except under limited circumstances.

Those changes means banks will have to adapt -- and cardholders will have to pay. "Any legislation that makes it harder for them to do business, you're going to end up with higher rates," Davis says.

See related: A guide to the Credit CARD Act of 2009, Fed issues final Credit CARD Act rules, Creative new fees escape CARD Act rules, surprise consumers

Published: January 20, 2010

	Three most recent Research, statistics stories: Rate survey: Credit card rates hold steady for 2nd week – The average interest rate on a new credit card offer remained unchanged this week, according to the CreditCards.com Weekly Credit Card Rate Report, though issuers are still tweaking APRs ... Consumer credit card balances keep rising, Fed says – Consumer credit card balances moved higher in December, as more Americans pulled out their cards for the holidays. But experts say that a return to holiday shopping may not be the only reason why consumers saw their balances swell ... Rate survey: Credit card rates hit lowest levels in 5 months – Interest rates on new credit card fell to their lowest levels since August 2011 this week, according to the CreditCards.com Weekly Credit Card Rate Report ...

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