My husband and I were holders
of a Visa Platinum card with a fixed 5.9% interest rate. Our account was
recently sold to another credit card company and we have been informed that our
rate is now variable meaning we could be paying as much as 18% and that includes
our balance transfer which were purchases made with the understanding it was at
the lower interest rate. Is this legal? I am currently shopping around for
another card with a comparable interest rate.
Anne
Sounds like Anne feels betrayed
by Visa. And, that's understandable. She thought that she had agreed to a
specific interest rate for the life of the account. But that wasn't really the
case.
There are surprising differences
in credit card accounts. And most of us aren't aware of them. So let's take a
look at fixed and variable rate credit cards.
Unfortunately for Anne the new
card issuer can change her rate. It's perfectly legal. In fact even her old
credit card issuer had the right to change the rate. It just happened that they
never did.
A fixed-rate account is really
misnamed. It's not like your mortgage or an auto loan where you can expect to
pay the same rate for the life of the loan.
The Truth In Lending act only
requires that card issuers give you 15 days notice if they're going to change
the rate on a 'fixed-rate' account. Some states have laws that require a longer
notice. But you're still vulnerable to rate changes. A more accurate title
would be that they're an 'almost fixed-rate account'.
Her new card issuer has given
Anne a variable-rate account. And, as you might expect, the rate fluctuates.
Variable-rate accounts are tied
to a published index. Most use the federal funds, Federal Reserve discount rate
or the one, three or six month Treasury Bill rate.
The index is used to calculate
the interest rate charged the consumer. You will be charged a rate that's
higher than the index. Dig through the fine print to find the formula.
Expect a variable-account rate
to change fairly often. The rate might not be significantly different, but it
can change each month.
The card issuer must tell you
when you open the account how the rate will be determined. Unfortunately, it's
not going to be highlighted for you. In most cases, the card issuer would be
happy if you never read the disclosure statement.
If the truth were told, most of
us don't really like to read those statements, either. But you need to know the
minimum and maximum rates that can be charged on a variable-rate account.
Remember that a high minimum rate means that you don't benefit if general
interest rates drop below a certain point.
Those aren't the only
circumstances that could cause Anne's rate to change. Both fixed and variable
rates can change if she's late with a payment. And all her accounts could
change. Not just the one that was late.
Some cards will also allow a
higher rate to be applied if Anne goes over her credit limit. A 'credit limit'
isn't really a ceiling on how much you can borrow. Many accounts will let you
charge beyond your limit and then assess 'over limit fees' and a higher rate of
interest.
What can Anne do? She's already
pursuing one option. That's to transfer the balance to a new fixed-rate
account. Of course that's no guarantee that the rate won't change later. And
some fixed rate cards charge higher rates than variable ones.
If she has the money, she can
pay off the balance and notify the card issuer to close the account. A final
alternative would be to use another account for new charges and pay off the
Visa account as soon as possible.
The bottom line is that what
Visa did might have been misleading, but it was legal. And, we can all learn
from Anne's experience. Whether you have a fixed or variable account, don't
count on your interest rate staying the same. There are no guarantees that will
happen.
Gary Foreman is a former
Certified Financial Planner who currently edits The Dollar Stretcher website www.stretcher.com and newsletter.
Home | Card Reports | Credit Information | Credit Calculators | Site Map | Search | About Us | Terms and Conditions