The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern. Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.
New federal rules governing credit cards are set to take effect in February, 2010. Despite increased federal attention to credit practices, some credit card issuers are raising interest rates and increasing existing fees, or adding new fees, to credit card accounts of consumers in Michigan and nationwide. This consumer alert provides consumers with tips on how to look out for, and hopefully avoid, outrageous interest rates and fees.
Yes, in most cases this is legal. Most retailer-provided credit cards, along with bank credit cards and others, are in fact issued by national banks or banks that are chartered in states with either a very high limit on the amount of interest that may be charged, or that have no cap on interest rates at all! Generally, credit card issuers can charge you any interest rate they want.
Although most credit card issuers can charge you whatever interest rate they want, or impose any new fees or increase any fees they want, they must provide you with written 45-day advance notice of rate increases and certain fee increases. The written notice must also inform you of your right to cancel your card before the rate increase takes effect. If you do cancel your card, you will be able to repay the card at the lower rate, and cannot be required to immediately repay the outstanding card balance.
There are a few circumstances in which credit card companies do not have to send you this written notice. Your credit card company does not have to give you written notice if this interest rate for your variable rate card, which is tied to an index such as the prime rate, increases as a result of the index going up. Also, the credit card company does not have to notify you if your introductory rate expires and the rate on your credit card reverts to the previously disclosed rate.
Say you have a variable interest rate card, which has an interest rate of prime plus 9%. Your credit card issuer would not have to notify you if your interest rate goes up because the prime rate goes up. For example, if prime is currently 3.25%, then your credit card interest rate would be 12.25%. If the prime rate goes up next month to 4%, your credit card company would not have to notify you that your interest rate was going up to 13%.
However, if, using the example above, your credit card company wants to change your interest rate to prime plus 75%, they would have to notify you before they change your interest rate.
But in most other circumstances, a credit card issuer must notify you before changing a material term of your credit card account.
Although there is no guaranteed way to avoid paying higher interest rates and fees, the following are some steps you can take to try to avoid or resolve skyrocketing rates and fees on credit cards:
Be vigilant! The key for all consumers is to be vigilant when reviewing your credit card statements. This includes carefully reviewing any inserts that the credit card company may send you along with your bill, or any notices your credit card company sends you separately. Be sure to review your statement and inserts or notices very carefully upon receipt! The longer you let notices sit, the less chance you have of rejecting the change in your credit card terms and conditions.
If you receive notice that your interest rate will be increased, make sure you follow the instructions on the notice if you would like to opt out of this change to your account. If you decide to opt out of the change within the time frame set out in the notice, the credit card issuer will generally close your credit card account. Make sure that you do not make any new purchases on a closed account. If you reject a rate change but still have a balance on the closed account, you should have five years to pay off that balance in full -- but only if you follow the procedure for opting out!
It is important to keep in mind that closing credit cards generally temporarily lowers your credit score. If you are about to make a major purchase, such as a home or a vehicle, and you will need to apply for outside financing, closing a major credit card account may make it harder to obtain that financing. Before you decide whether to reject a change in a credit card term and close an account, consider any future financial plans -- it may be in your best interest, at least until you complete your major purchase -- to accept the term, leave the account open, and either pay off a balance before the rate change takes effect, or transfer the balance to another card with a lower interest rate.
Contact your credit card company if you notice that your rate has changed and you did you didn't receive prior notice: You may have missed the notice that your credit card company sent you regarding an upcoming change in your credit card terms, or your credit card company may have failed to send you the required notice. Regardless, call your credit card company as soon as you notice a rate increase, and see if they can resolve the issue for you.
If you can't resolve the issue on your own, file a complaint: If your credit card issuer has the word "national" in its name, or if the name is followed by an "N.A.", the federal Office of the Comptroller of the Currency (OCC) regulates these issuers or banks. For more information, or to file a complaint online, please visit the OCC's website.
If the OCC does not regulate your credit card issuer or bank, you may file a complaint with the Federal Deposit Insurance Corporation (FDIC). For more information, or to file a complaint with the FDIC, please visit the FDIC's website.
If either of these agencies or websites do not provide you with the information that you need, you may file a complaint with the Michigan Attorney General's Consumer Protection Division, and we can attempt to mediate your complaint with your credit card company.
If you have questions or concerns about the business practices of your credit card issuer: In most cases, federal agencies, not State Attorneys General, have regulatory authority over credit card issuers, especially if they are national banks. If you have questions or concerns regarding federal rules and laws governing credit card issuers, consider contacting your federal representatives or federal regulatory agencies (such as the OCC and FDIC mentioned above).
For general consumer questions or complaints, you may reach the Attorney General's Consumer Protection Division at:Consumer Protection Division