CARD Act prevents sudden rate hikes, not annual fees

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question for the expert

Dear Credit Guy,
Today I received a letter in the mail stating that the credit card I've had for the past 10 years is implementing a $60 annual fee. Right now, the balance consists of a transfer that I'm paying off at an agreement of 4.9 percent until it is paid in full. I do not want to keep this card with this large fee, but do not have another low interest transfer offer on a different card. The balance transfer fees alone would exceed the $60 annual fee. The letter says that I am able to opt out and "pay down my outstanding balance under the current terms." I'm upset about paying $60 when I have about eight months before this debt is paid and have no plans on using this card in the future. Will opting out and canceling my card hurt my credit because there is an outstanding balance? And, more importantly, can I trust that the card company will not increase my 4.9 percent rate? Thank you for your help!  -- Kate

Answer for the expert

Dear Kate,
Your letter is a perfect example of moves many card issuers are making now that the majority of the provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act) have gone into effect. Many of the provisions of the CARD Act have negatively impacted card issuers' revenue, and they are understandably looking for ways to replace that revenue. Initiating an annual fee is one of those ways.

In addition, many card issuers may switch your credit card from a fixed interest rate to a variable rate (if they haven't already). The variable rate will be tied to an index rate -- usually the prime rate -- and will increase or decrease as the index does.

To avoid any unexpected and unwanted changes by your card issuer, read everything you receive in the mail from them. You have the right to opt out of changes and pay off any remaining balance under the original terms of your cardholder agreement. The downside of opting out is that your account will be closed by the issuer and you will no longer be able to make purchases with it. Also, if the account is a long-standing account like yours of 10 years, closing the account could negatively affect your credit score if it is your oldest account. However, the slight ding to your credit score shouldn't keep you from closing the account if you are unhappy with the proposed changes to your agreement. The longevity of your accounts makes up only 15 percent of your total FICO credit score.

The good news is that the CARD Act offers some protection for your 4.9 percent interest rate. Card issuers can no longer raise interest rates due to past due payments on other accounts or due to market conditions otherwise known as universal default. If the issuer wants to increase the rate, however, you will be notified and will have 45 days to decide whether to close the card and continue to pay the balance at the old rate, or accept the new rate.

Even though the CARD Act provides many needed protections for cardholders, I recommend that you and my readers make every effort to pay off large balance credit card accounts and move toward not carrying a balance every month.

Take care of your credit!

See related: A guide to the Credit CARD Act of 2009, Credit card reform and you, Research: Credit card mail offers with annual fees return, Consumers gain the right to opt out of credit card changes 

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Updated: 01-23-2019