Clients often tell me that a credit card interest rate increase and corresponding minimum monthly payment increase is “the straw that broke the camel’s back” in the decision to file bankruptcy. The impact is often multiplied when one credit card company increases the interest rate on an existing balance based on a late payment to another lender, a practice known as a “universal default.” Help for some consumers is on the way.
On May 22, 2009 President Barack Obama signed legislation referred to as the Credit Card Bill of Rights Act of 2009. This legislation amends the Truth and Lending Act, and provides consumers with many reforms to the way credit cards are issued and administered. Highlights of the legislation include provisions requiring lenders to apply payments to the balances with the highest interest rates first. It also prohibits increasing a consumer’s rates on existing balances based on late payments to another lender. The new law mandates 45 days notice before a lender could increase a card’s interest rate. It also prohibits retroactive rate increases on existing balances unless a consumer is 60 days late with his or her payment. Credit card companies would have to revert to the original, lower rate if a cardholder stays current six months after a late payment. The legislation also limits credit extended to college students and limits a lender’s ability to charge fees for making payments via telephone and the internet.
Most of the provisions of the new law will become effective February 22, 2010. Critics of the legislation predict that all credit card holders will see an increase in their interest rates as a result of the legislation. Opponents of the legislation also are concerned that it will reduce available credit during an economic crisis.
