How High Will Your Credit Card Rate Go?

March 19, 2009

Yesterday I watched President Obama speak and field questions from residents at the Town Hall meeting in Orange County.

An attendee asked the President a very good question: “Why aren’t there interest rate caps (the maximum amount of interest that credit card lenders can charge) on credit cards? Why are some cards as high as 30% because I missed a payment?”

Obama responded that he agrees and that there should be some federal regulation involved. As I watched, my inner voice was screaming: “Mention credit unions! We already DO have caps!” But the President didn’t hear me, so he didn’t mention it.

I’ll start with non-credit union credit cards. I can’t speak for all, but I do know that previously, on most cards, if you miss or are one or two days late with your payment, your interest rate will increase dramatically. When this happens, the consumer is shocked and appalled. The credit card company’s reponse: It’s in the small print. Which it is, but most of us don’t bother reading the small print on a loan application or disclosure; we’re all guilty of that.

However, there are new regulations that were approved December 18th by the Federal Reserve Board, Office of Thrift Supervision, and the National Credit Union Administration, according to bankrate.com.

Banks hiking fees, restricting credit: The act prohibits card issuers from applying rate increases to existing balances except when holders pay 30 or more days late, when previously disclosed promotional rates expire or when a rate movement is tied to an index, as with variable-rate cards. This ends the practice of “universal default” on existing balances.

This is a good thing, right?

It is, but I have to tell you that credit unions, for years, have always had an interest rate cap of 18%. And again, I can’t speak for all credit unions, but I can tell you that MCCU will not increase your rate because of a late payment. Sure, we’ll charge you a fee, like everyone else does, but chances are that fee is a lot lower than what you’d pay a bank.

The bottom line is this – when you are applying for a new credit card, or are looking to transfer an existing balance to a new card – always, always read the small print and read the entire disclosure. You want to be as educated as possible as to the terms of the card and what exactly would happen if you were late making a payment.

Find out more about MCCU’s Credit Card program.

Questions or comments? E-mail me at blogger@matadorsmoneymatters.com.

Posted in Loans, Tips