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Have you missed a payment with Citi or any other credit card issuer? Want to avoid late fees and interest charges? Unfortunately, the Credit CARD Act will not protect you.
In the weeks before the Credit CARD Act of 2009, some credit card companies were already looking for loopholes in the legislation and ways to change the terms — such as raising interest rates — on their products before the February deadline.
The Credit CARD Act, in theory, is designed to protect consumers against unscrupulous credit card policies that can result in added costs. One major component of the “act” is the ban of “retroactive interest rate hikes”. This means that higher interest rates can only apply to new balances, not existing balances, on any card.
Also, credit card companies must give customers 45 days notice, in writing, before raising interest rates. And customers must have the opportunity to opt-out of the interest rate hike. (You can read more about how to do that in this post.)
Customers must be 60 days late on a payment before a credit card company can implement a “default” interest rate (often as high as 29.99%).
But there’s a major loophole in this portion of the legislation: “Special offers” and introductory rates are NOT subject to the 45-day advance warning for interest rate hikes.
On top of that penalties can be imposed during an “introductory period” if you pay late by just a day — or even an hour.
How Credit Card Issuers Game the System
Another major flaw in the legislation: It gave creditors plenty of advance warning regarding the new restrictions.
Some credit card companies took advantage of this by raising interest rates prior to the February 2010 deadline. CitiBank did this to their customers, sending a letter to their customers just prior to the Credit CARD Act going into effect.
Citibank offered its customers a “special 8.99% interest rate” (nothing all that special, but still lower than many customers receive) — as long as they didn’t pay late.
One late payment and the interest rate would rise to a default rate of 29.99%, with no advance warning and on all balances, including existing balances.
Considering how many normal customers — those with a good credit history and enough money to pay their bills each month — miss a payment by a day or two every so often, the plan was a good risk (and presumably a profitable endeavor) for CitiBank.
And it is precisely in opposition to the spirit, if not the letter, of the Credit CARD Act.
The downturn in the economy has prompted credit card companies to view all consumers as a “poor credit risk,” even those with good-to-excellent credit scores. They expect customers to miss payments — and are ready to jump on those who do.
However, there’s a big difference between someone who can’t make their monthly credit card payments and habitually pays 60 days late, versus the average consumer who may occasionally miss a payment.
Good customers sometimes make payments a few days late due to travel, lost mail, temporary lack of Internet access, the bank’s web site being down or even sheer forgetfulness.
The Credit CARD Act was designed to protect these customers against unreasonable interest rate hikes. Unfortunately, the legislation was designed with too many loopholes.
What To Do If Citi Increased Your Interest Rate
The days of calling to have your interest rate lowered after a missed payment may well be gone — but it’s worth a quick call (if only to voice your dissatisfaction at the bank’s policies.)
Your best bet to deal with a credit card interest rate increase is still (as always) to pay off your balance as quickly as possible, and only charge what you can afford to pay off at the end of each month.
You can also sign up for automatic bill pay and make sure you don’t miss a credit card payment — even by a day or two.
If you haven’t yet missed a payment under Citi’s new policies, enjoy the 8.99% interest rate while it lasts — it’s a good opportunity to pay down your balances more quickly. Beat them at their own game.
One more warning: Many customers were caught unaware by Citi’s change in policies. Read everything the bank sends your way, and if you don’t understand something, call a customer service representative at your bank to explain the new policy to you.