Super-low rates on credit cards 'thing of the past'
By Sandra Block
USA Today
Borrowers beware: Credit cards with super-low interest rates are becoming harder to find than plywood in Florida.
If you believe that a rate increase on your credit card was unjustified, or wasn't adequately disclosed, try to resolve the issue with your credit-card issuer first, suggests the Office of the Comptroller of the Currency, a federal banking regulator. If that effort fails, you can file a complaint with the OCC by calling (800) 613-6743, or by e-mailing customer.assistance@occ.treas.gov.
The Federal Reserve Board raised short-term interest rates by one-quarter of a percentage point Tuesday, the third rate increase this year. Many analysts expect the Fed to nudge rates higher again before the end of the year. That will mean higher costs for millions of borrowers, including some who believe that they're immune from rising interest rates.
Consumer complaints
Borrowers with variable-rate credit cards, which are directly affected by Fed moves, already have seen a modest increase. The average annual percentage rate for a variable-rate card is 13.8 percent, up from 13.49 percent July 21, according to Bankrate.com.
About 40 percent of bank credit cards carry variable rates. Most are linked to the prime rate, which rises when the Fed boosts short-term rates. Variable-rate cards aren't the only ones affected by rising rates. Some of the biggest increases may come in places borrowers least expect. Some examples:
• Higher fixed rates. Many borrowers believe they're sheltered from rising rates because their cards have low fixed rates. But if you read the fine print on your credit-card agreement, you'll probably discover that when interest rates are swirling higher, your fixed-rate card provides about as much protection as a pup tent in a Category 5 hurricane. Most credit card issuers reserve the right to raise rates on fixed-rate cards, often with as little as 15 days' notice, says Greg McBride, financial analyst for Bankrate.com.
The last time the Fed shifted into rate-boosting mode was from mid-1999 to mid-2000; during that period, the average fixed credit card rate rose from 13.3 percent to 16.7 percent, McBride says.
Borrowers with extremely low fixed rates will likely see an adjustment before long, McBride says.
"Super-low rates will become a thing of the past," he says.
• Less attractive offers. In the past three years, credit-card issuers enticed borrowers with zero-percent balance transfers or microscopic interest rates. With rates rising, those deals are starting to disappear.
Instead, card issuers are trying to lure customers with rebates and rewards, says David Robertson, publisher of The Nilson Report, a credit card industry newsletter. Many card issuers will continue to promote below-market rates, but they won't be as low as they were a year ago, Robertson says.
Some super-low teaser rates balloon at the end of the introductory period, a big problem if you're still carrying a balance. Read the fine print carefully, says Linda Sherry, editorial director for Consumer Action, a nonprofit group.
Unfortunately, borrowers who take the time to read credit card agreements often find themselves bushwhacking through a thicket of dense prose.
Last week, the Office of the Comptroller of the Currency, which regulates national banks, warned banks that they need to make sure borrowers understand what they're getting into when they sign up for a credit card.
