Credit Card Interest Laws Everyone Should Know
Over the last 50 years, legislators have cracked down on unfair credit card interest practices by imposing strict regulation. Despite this, some financial institutions have, either intentionally or accidentally, failed to comply. Without the proper information, a cardholder may not even realize that they are a victim. This article will show you which rules you should pay special attention to, and what to do if they're broken.
Banks cannot change your interest rates during the first 12 months of card membership. There are, however, a few exceptions. Take for example a card with 9-months of 0% APR. The cardmember can expect interest to revert to the standard offer once the promo period expires. If you have a variable APR based, it will increase whenever the Prime Rate does. Fortunately, this is generally a small increase and happens infrequently.
Aside from the above-mentioned exceptions, your bank needs to provide a 45-day notice before increasing interest. Most rate increases can only apply towards future balances -- that is, all purchases after the 45-day notice expires. Penalty APR is the only exception. Failing to pay your balance for 60 days allows a bank to charge you interest on the total outstanding balance.
The CARD Act of 2009 requires banks to review rate increases at least once every six months. However, keep in mind that in their re-evaluation, the issuer may not have all the relevant pieces of information. It may be in your best interest to try and negotiate a lower rate by yourself. Inform the issuer if your salary has increased, or if you now have access to new liquid assets. These types of factors can influence your creditworthiness, and may be enough to convince your bank to ease up on the interest they’re charging you.
The issuer must apply your payments in descending order of APR. This way, you are always paying off the debt that's accumulating the most interest. By doing so, it's minimizing the cost of the loan to you. Once again, promotional APRs are the exception. With these, the bank must apply the full payment to the promotional balance during the last two months of the offer.
Before the 2009 CARD Act was passed, some financial institutions applied their customers’ payments to the portion of their balance with the lowest APR. Paying low-interest balances first would maximize the finance charges paid. This would also drag out how long it would take to completely repay the bill.
What Can You Do If Your Bank Does Something Wrong?
The Consumer Financial Protection Bureau (CFPB) is an organization that was established to act as a consumer advocate. One of their primary roles involves investigating credit card issuers for questionable practices.
The CFPB maintains an online complaint system. Submit a ticket if your interest rates have been unjustly raised, or if you’re facing any issue with your credit card issuer for that matter. The Bureau will look at all the facts you preset, and contact your issuer as well. If your issuer is in the wrong, the CFPB will see to it that you are issued a refund or receive some form of compensation.
You don’t need to file a complaint with the Better Business Bureau (BBB). This nonprofit organization doesn't have the authority to guarantee a response. Organizations can respond to complaints filed on the BBB site, if they want to. However, outside of maintaining public relations, banks have little-to-no incentive to follow up. The CFPB, on the other hand, has the power to levy fees. The Bureau is also operated by the U.S. government. These facts make banks take one more seriously than the other.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.