Feds may (finally) place some restrictions on credit card interest rates!

Several Federal bank regulators have agreed to set at least some limits on how credit card companies charge interest. This will now go to a public comment period and could change, but if it goes through as proposed, it has two primary provisions:

1. Credit card companies are no longer allowed to increase the percentage rate on outstanding balances. This means that if your credit rating gets dropped for any reason, or you get into arrears on other debt, the credit card company cannot decide to raise your interest rate on charges you have already made. They CAN raise your rate on future purchases, but not on current balances. (If you fall into arrears on your credit card debt, they may also be able to raise interest on past due balances.)

2. They cannot apply your payment only to low interest balances. If you have different rates on different balances (this typically happens when you transfer old balances from one card to another at a low — or even zero — rate and then go on to charge new items), the credit card companies usually apply all of your payments to the lowest interest balance. From now on, when you make a payment on your bill, the company can charge it off to the highest interest balance, or it can allocate your payment equally across all balances. (If you have one of those “zero interest on transferred balances” come-ons in your mail box, now would be a good time to send it in.)

There are other provisions such as one that requires companies to make sure you have at least 21 days after you get the bill to make your payment. We don’t know how many of these will survive the comment period.

Credit card interest rates go as high as 35% in many cases because the companies have found their way around state laws limiting interest rates. Any regulation has to come from the federal government, which now seems to be doing something to protect cardholders.

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