The Credit Card Act of 2009 will affect how your credit card company can increase your interest rates as of February 22, 2010.  Currently your credit card company would increase your interest rate at will. Over the past 6 months, everyone with a credit card has received notices in the mail changing interest rates and the calculation of finance charges. For some of you, the increased interest rate has affected amount that you expected to pay on existing balances. The new law limits credit card interest rate increases on existing balances to the following situations.

1.    If you are currently charged a temporary or promotional interest rate  (for example - 0% until August 2010), your creditor can increase the rate when the promotional rate expires. These low rates are called teaser rates that are designed to draw consumers into applying for credit or transferring balances from other credit cards. The law requires that teaser rates last at least 6 months.

2.    If your interest rate is variable and tied to an index (for example: 8% + PRIME @3.25% gives you an interest rate of 11.25%),your interest rate may increase or decrease each month as your index decreases or increases. Your index can be the Prime Interest Rate, LIBOR (London Interbank Offered Rate), or any index of your creditor’s choosing. The index should be traceable on the business pages of your local paper or in any business publication or website.

3.    If you agree to a special credit repayment workout plan or you are in default of a workout plan, it will be likely that you will be presented with an interest rate higher than what would be charged if your payments were in good standing. This rate is most likely negotiable when the workout plan is established. It will be in your best interest to be an active participant in reading the documents and negotiating the terms before signing anything regarding workout plan.

4.    If you are more than 60 days late with a payment,your creditor has a right to increase your interest rate. This increase does not have to be permanent. Your creditor must restore your interest rate after 6 months of on time payments.

5.    Military members on active duty have an interest rate cap of 6% by federal law. The interest rate will be increased to normal levels after active duty is completed.

If your interest rate has increased for any reason, your creditor must review your account every 6 months for payment history, use of credit, and market conditions to determine if you could qualify for a decrease in your interest rate. If you believe that a decrease is justified, call your creditor’s customer service department and request a review of your account.

One of the best features of the Credit Card Act of 2009 is the banning of universal default.  Universal default was a practice of increasing your interest rate on a credit card because you were late on payments for other cards. For example you may pay your MasterCard on time faithfully but you are inconsistent with your Sears payments. MasterCard would raise your interest rate based on your “risky”behavior. Each card must be reviewed on the payment history for that card. 

Consider though, that your initial interest rate is a factor of your credit history so you may be charged a higher rate from the beginning based on you past payment history. It is good to know that as your payment history improves, you may have a chance to lower your credit card interest rates.