Credit Card Glossary: Terms and Definitions
An interest rate floor is set by the issuer of a variable rate credit card as the minimum annual percentage rate it will charge. Variable credit card interest rates are usually pegged to the prime rate, which moves up and down in accord with the federal funds rate set by the Federal Reserve. However, when the Fed cuts rates severely, cards with floors will not pass those rate cuts along. Under the Credit CARD Act 2009, the Fed has ruled that accounts with floors on variable rates are not allowed because issuers are exercising control over the rates by preventing them from freely dropping as the prime rate decreases.