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November 30, 2012 09:50 PM

When Interest Rates Can Rise

Sioux Falls, SD

What you don't know about your credit card could hurt you. The 2009 card act was supposed to make credit card issuers more transparent and prevent them from imposing certain fees. But a recent study by a credit card comparison site shows that consumers still aren't always getting everything they need to know from their credit card company.

It's a tactic credit card companies have used for years, pay your bill late and you'll get socked with a "penalty" interest rate; meaning your rate will skyrocket.  The Credit Card Act of 2009 was supposed to force credit card companies to limit that practice and disclose to you when it could happen. 

Card's  2012 Interest Rate Repricing Study looked at how well the ten largest credit card issuers follow those regulatory disclosure requirements.  It also analyzed how effective government regulators are in making sure the companies provide what you need to know about interest rate changes.  It blasts the Federal Reserve's disclosure model.

"They have essentially told them whatever is in the law, you don't need to disclose and instead, you can use ambiguous terms to tell people if they make a payment late, their interest rate might skyrocket to penalty APR which is completely misleading, that's not true," Odysseas Papadimitriou founder of Card said.

Card Hub's founder says your interest rate can only go up after you have missed three payments in a row.  And even then, by law, if you pay the next six payments on time, your rate must go back down.  

Your interest rate on existing balance can't change term for any reason other than 60 days delinquent," Papadimitriou said.

Seven of the ten largest credit card issuers apply Penalty APRs for being delinquent. USAA, U.S. Bank, and Wells Fargo are the only major issuers that never use Penalty APRs.

The study found that of the banks that do impose Penalty APRs, American Express' and Bank of America's disclosures are easiest to understand for the consumer.

But be warned, while your existing balance is protected, your future purchases may not be. 

"Credit card companies still have right to change interest rate on future transactions at any point in time and for any reason," Papadimitriou said.

The Consumer Financial Protection Bureau has introduced a prototype disclosure for credit card companies to provide consumers with more information that would fill in the gaps in the Federal Reserve's model.  It is currently open for comment and has not yet been implemented.

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