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

Note to the Federal Reserve: Revise your WYNTK pages

I often recommend the Fed’s “What You Need to Know” pages to consumers who need an overview of the CARD Act rules. But I can no longer send consumers there because it doesn’t tell the whole story. Here’s what I mean:

Regarding the 45 days notice, what it says: Your credit card company must send you a notice 45 days before they can increase your interest rate.

What it should say: Your credit card company must send you a notice 45 days before an increase in your interest rate shows up on your statement. But note that the bank will begin charging the new interest rate on transactions that occur 14 days after the postmark date on the notification.

Regarding retroactive rate increases, what it says: Increased rates apply only to new charges. If your credit card company does raise your interest rate after the first year, the new rate will apply only to new charges you make. If you have a balance, your old interest rate will apply to that balance.

What it should say: When a notice of an increase in your interest rate is mailed to you, the increased rate will apply to new charges after 14 days. If you have a balance, your old interest rate will apply to that balance. However, if the rate increase is because you were more than 60 days late with a payment, the new rate will apply to your entire, outstanding balance 14 days after the notification is mailed.

Really, this is a big deal, especially when it comes to retroactive rate increases. Let’s say Bob has a $15,000 balance at a 12 percent APR and becomes unemployed. Bob goes into a financial tailspin and is more than 60 days late with a payment to his credit card issuer. Bob gets hit with a 29.9 percent penalty rate. So now, if Bob doesn’t put anything else on his card, he’s carrying a $15,000 balance at almost 30 percent interest! That’s around $4,500 a year in interest expense. If I’m Bob, I want to know about my situation as soon as possible so I can make some decisions about how to get myself out of this mess.

I have to wonder why these important details were not widely shared. The obvious answer? Telling the public that they have 45 days notice on interest rate increases is an easier sell. Imagine if consumers had also been been told this: Oh, by the way, when you receive a notification that your interest rate is increasing, you actually get hit with the new rate 14 days after the postmark date. You just don’t have to write the check and cough up the extra money for 45 days. The public would’ve focused on the 14 days, which would’ve been better because consumers would have had all the facts. I’ve reached out to the Fed and asked why these details weren’t included in the WYNTK pages and I’ll update this story as soon as I hear from them.

Seriously, all those in charge of interpreting (and attempting to explain) credit card legislation need to stop acting like consumers don’t need all the details. Not only do consumers want the details, they want the whole truth. Every last bit of it.

[Credit Card Q&A: What does a credit card “grace period” mean?]