How to opt out of credit card rate increases
You may be able to pay it off at the old rate, but lose use of the card
Ask The Credit Guy
Dear Credit Guy,
I have just been notified by my bank that it is going to increase the interest rate on my credit card to 27 percent. I have been given a month to accept or decline the change. My question is that if I decline, am I expected to pay the full balance right away or will I be allowed to continue to make payments at the original interest rate until the card is reimbursed?
-- Help in Nashville
The simple answer is that if your credit card issuer allows you to opt out of an interest rate increase -- and not all do* -- you will not be expected to pay immediately what you owe in full. However, if you are able to pay off the balance in full, that would be your best course of action. Once you decline a change to your card agreement, the card issuer will most likely close your account so that you can no longer make new charges. To see if your credit card issuer allows you to opt out, you will need to check your cardholder agreement or contact your issuer directly. (Update: On Aug. 20, 2009, provisions of the Credit Card Act of 2009 went into effect that mandated consumers be given the right to opt out of increases in interest rates, fees, finance charges and certain other changes in credit card agreements. See story.)
If you are allowed to opt out, you need to send in writing that you are declining the change in interest rate. You will then be able to continue paying at the original terms and interest rate until your balance is $0. Your balances will be subject to the interest rate(s) that you are currently paying. It is important that you decline the offer in writing and send the mail return registered receipt. You want to have something to use for proof that your letter declining any changes to your account was received. Keep a copy of the letter as well.
I want to congratulate you on reading the correspondence from your lender. Many people just toss the mail they receive from their credit card companies into the circular file unless it is the monthly statement. As you so wisely discovered, you have to decline the changes to your agreement within a certain period of time. If you had thrown out the notice, you would be paying 27 percent interest with no way to refuse the change.
Lenders are required to send you written notification of any change to your cardholder agreement along with your right to refuse those changes. As you know, they don't do anything to draw attention to the fact that what is included in the envelope is important. Why would they when the announcement is a 27 percent interest rate hike?
Good job on staying on your financial toes by reading and understanding every correspondence sent to you; however, the lender probably didn’t just randomly send you the change to your agreement.
There are a couple of questions you should ask yourself:
Have you recently acquired any new credit?
If the answer is yes, your lender may have decided that because you are acquiring new credit you are at a higher risk than when the original agreement for credit was given to you. If your circumstances haven’t changed and you are making the same amount of money as when the original agreement was signed, then the lender may have a point. However, if you are earning more money, you might just want to update your lender as this might prevent any changes to your agreement.
Have you recently missed any payments with them or any other creditors?
If the answer is yes to this question, then the lender may assume you are now a higher credit risk, rightly or wrongly. Banks that issue credit cards have statistical data and many number crunchers keeping up with things such as missed payments and this particular lender may be wondering if they are going to be next.
Take care of your credit!
*As originally published, this story did not accurately describe the consumer's right to opt out of interest rate increases. See CreditCards.com's correction policy.
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
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