Tags: Credit | Card | Rates | Law

Credit Card Rates Soar Thanks to 2009 Law

Credit card rates are higher than ever thanks, ironically, to a law passed in 2009 designed to lower them.

A CreditCard.com survey finds that national interest rates on new credit card offers averaged 15.14 percent in the first week of the year, up from the 14.71 percent in the first week of 2011 and well above the first week of 2010, when rates averaged 12.87 percent, the Washington Times reports.

Credit card rates are rising while other rates remain low, such as those tied to home, auto or personal loans.
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Look to Congress for the reason why, says Greg McBride, senior financial analyst at Bankrate.com.

The law prevents issuers from raising rates on an existing balance until the cardholder misses payments for more than 60 days.

To make up for that, issuers are just hiking rates up front on all cardholders.

"The overriding factor in that increase in rates is [the law]," McBride says.
"That’s like telling an auto insurance company that they can only raise the premiums after the car gets totaled. If somebody’s getting speeding tickets and DUIs, there’s a lot of risk there."

Other economists agree that credit card providers have no incentive to lower rates since the new law, known as the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act, limits fees lending institutions can charge.

"The profit margins have been squeezed," says Greg Daco, senior U.S. economist at IHS Global Insight, the Washington Times adds.

"So the banks don’t have much of an incentive to lower credit card rates."

The good news is that credit-card rates may come down, others say.

"I'd guess they will start to trend downward as the economy improves," says Ben Woolsey, director of marketing for CreditCards.com, according to ABC News.

"By December, I'd expect to see them in the range of 13 to 14 percent. That's my gut feeling."

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