Two Credit CARD Act Loopholes You Need to Know About Right Now

I recently came across two really big—no, make that gargantuan—CARD Act loopholes that no one has made much of a fuss about.

A few weeks ago, I was doing a little “light” reading on Helpwithmybank.gov, which is associated with the Comptroller of the Currency Administrator of National Banks (OCC), and read a Q&A that made me stop in my tracks. It was about what happens when you receive a notice that your credit card’s interest rate (also known as the APR) is going to increase in 45 days.

The question: Can I continue making purchases with my card at the existing rate for 45 days?

The response on Helpwithmybank.gov: “After 14 days, the new rate will apply to further transactions. At the end of the 45-day period, the bank can begin charging the new rate for any balances you accrued after the 14th day after the bank sent the notice.”

“Please note that if your rate is increasing because you were more than 60 days late in making a required payment, the bank can apply the new rate to all your balances.”

This response uncovers two astounding loopholes. Let’s take a look at each one.

Loophole #1: If you receive notice of an interest rate increase, your new rate is applied after 14 days—not the 45 days that’s implied under the CARD Act.

Honestly, my first response to this gem was: Are they kidding me? The common belief is that we all have 45 days before the increase takes effect. But according to this response by the OCC, if your interest rate increases, you don’t get 45 days before it takes effect.

Instead, credit card issuers can start applying the new, higher rate just 14 days after notification of the increase is mailed to you. This means that all purchases made after the 14^th day are charged at the new APR. You get 45 days before you have to make a payment that includes the higher APR.

I contacted the OCC to make sure this response was accurate and in line with the Credit CARD Act 0f 2009. A spokesman for the OCC said, “After 14 days, the new rate will apply to further transactions.” He confirmed that the 14-day window is a correct interpretation of the CARD Act and that the 14-day period begins with the postmark date on the notification that’s sent to you. I know this is confusing, so here’s an example of a timeline to keep in mind if you receive a notification that your interest rate is going up:

August 1: Your credit card company mails a notification that your APR is increasing from 12 percent to 15 percent.

August 15: Any transactions you make from this day forward are subject to the 15 percent rate.

September 15: At the 45-day point, your statement will reflect your new 15 percent APR. And the 15 percent rate applies to all purchases starting on August 15^th.

So why the hoopla over the 45 days notice? Well, you can think of it this way. You can use your 45 days to figure out how you’ll pay a higher interest rate on your purchases. Or you can decide that you don’t accept the new terms and work out a plan to pay off your balance.

[Credit Card Reviews: Credit Cards with Really Low APRs]

Loophole #2: Watch out for the retroactive interest rate increase »