Credit Card Debt and CARD Act Loopholes

Last year banks were required to start complying with the Credit Accountability, Responsibility and Disclosure Act (CARD Act). The CARD Act was passed to protect credit card consumers from unfair billing practices. Unfortunately, there are some loopholes in the CARD Act that allow for rather misleading actions by credit card companies.

Two major loopholes are explained below. Both may be particularly harmful to consumers with significant credit card debt.

An interest rate increase may take effect in 14 days instead of 45 days:

Many consumers are under the impression that they have 45 days before an interest rate increase is applied. This is not really the case. Under the CARD Act credit card companies can actually start applying a higher interest rate/APR 14 days after sending you notice (according to the postmark). Consumers are allowed 45 days before they need to make a payment including the higher interest rate.

Sound confusing? Say your credit card company wants to increase your interest rate. If they send you a notice postmarked September 1st any purchases you make from September 15 onward will be subject to the higher interest rate. After 45 days, your statement will show the higher interest rate that has been applied to all your purchases since September 15th.

Essentially instead of a receiving a 45 day notice of an interest rate change, you are given 45 days to determine how you will pay your balance subject to the higher rate.

You still may be subject to retroactive interest rate increases:

When the CARD Act went into effect, many consumers thought that retroactive interest rate charges had been completely abolished, but this is not really so. Under certain exceptions they are still allowed.

For instance, if you are over 60 days late making a payment, a retroactive interest rate can be applied to your account. The new higher rate can be applied to your whole outstanding balance, which is considered the balance 14 days after notification is sent.

Unfortunately, both of these practices are legal, and there is not much you can do about them other than to be aware that they exist. However, if you find yourself struggling with unmanageable credit card debt consider speaking with a knowledgeable bankruptcy attorney to discuss your options.

Source: Business Insider, Two Credit CARD