Creditors Consider Raising Annual Fees, Interest Rates

Although President Barack Obama recently signed a bill geared toward establishing fairer practices by credit agencies, it is not stopping many credit card companies from raising interest rates or incorporating annual fees before the law goes into effect in February, 2010.
 
According to Creditcards.com, some provisions of the Credit Card Accountability, Responsibility and Disclosure Act, (Credit CARD Act), are slated to take effect on August 20, 2009 including a provision that credit card issuers will be required to give customers a 45-day notice before increasing an interest rate. Currently, only a 15-day notice is required. However, many credit card holders are finding that companies are hiking interest rates to beat the August 20 deadline and fixed-rate charge accounts are not exempt.
 
In addition, the Washington Post recently reported that various creditors are also raising the requirements for minimum payments, charging more for balance transfers and hiking the fees for cash advances.
 
Select credit card companies have been contacting customers with the news that some fixed-rate charge accounts will now be subject to variable interest rates. In short, that means that credit issuers will be able to increase interest rates without notifying their cardholders. Usually, fixed-rate card issuers first had to mail a notification of rate changes before those changes took place.
 
The Wall Street Journal reported in a recent article that the only option some of these cardholders are given if they want to opt out of the change is closing their account altogether. Other companies will enforce a 'no opt-out' policy where customers will not have any option to deny the change. Exceptions to the rule include some student accounts, accounts in debt-assistance programs and newly opened accounts. It is not certain how many credit card companies will adopt the policy.
 
In addition to the previously mentioned rate changes, some companies may also begin resetting annual fee policies for cardholders prior to the law going into effect. According to creditcards.com, the Credit CARD Act bill does not include any direct comment on annual fee setting.
 
Annual fees first emerged from certain credit issuers under the term "membership fees." Initially, these fees were justified and were used by companies to profit since holders of some cards pay balances in full each month and carry no interest.
 
As explained by some financial industry professionals, creditors are scrambling before the deadline because consumer credit scores have decreased and the cost of providing credit has increased.
 
According to creditcards.com, Mail Monitor, a mail tracking service, reported that in the first quarter of 2009, Americans received 372.4 million card offers. According to the report, approximately 27 percent of those offers carried a fee.