Creditors Upping Interest Rates in Wake of New Law

Online, March 10, 2010 (Newswire.com) - The CARD act, which went into effect in late February, was designed to protect consumers from unreasonable credit card practices. However creditors, concerned about losing profit due to these new regulations, are already finding ways to charge their clients more by increasing interest rates. Debt Settlement America explains some of the ways consumers may be affected by the new law.

• No Interest Rate Caps. The CARD act prohibits credit card companies from changing interest rates within the first year of the account being opened or without notice. This was intended to prevent "universal default", in which a creditor changes a consumer's interest rate due to late payments on other, unrelated accounts such as other credit cards or utility bills. Though consumers may be protected within the first year, creditors may still raise rates for any reason after that period, as long as they provide notice. There are still no federal laws that limit the amount of interest a creditor can charge; state laws vary.

• "Rebate" Interest Rates. If a creditor does change a customer's interest rate, the new rate may only be applied to new purchases, and can no longer be applied to current or previous balances on the account. To avoid this, creditors have already begun raising interest rates on current accounts and offering so-called "rebate" interest rates for customers who pay on time.

For example, a customer with a current interest rate of 11.9% may get a letter informing them that their interest rate has been changed to 29.9%. This customer is told that if they pay their minimum payment by the due date, the creditor will give them a "rebate" and will only charge them their current rate of 11.9%. Most people assume they will pay their bills on time, and so do not think much of it. However, if for any reason the customer is late on a payment, the customer is automatically charged 29.9% interest. The creditor has given their required notice of the interest rate change, and because the interest rate was technically already changed with the original letter, old balances are subject to the new rate.

• Variable Interest Rates. Variable interest rate credit cards have allowed consumers to open credit card accounts at lower rates than they could otherwise qualify for. Variable rate cards tie their interest rate to the prime rate, which has been low due to the poor economy. However, economists predict that the prime rate will begin to climb again within the next year. There is no limit to how high the prime rate or these variable interest rates may be.

Additionally, because the rate is variable, creditors are able to adjust rates without any notice to consumers with these kinds of accounts. Creditors have already been adjusting the way they calculate the prime rate and interest rates tied to it in order to charge as much as possible from their customers.

As these new changes go into effect, more Americans may find themselves overwhelmed with debt and unsure of what to do next. One option for consumers is to consider working with a debt settlement company. Debt Settlement programs work by negotiating on a consumer's behalf to secure settlement on their unsecured debt. With programs typically lasting three years or less, debt settlement allows a consumer to pay off each creditor for less than their current balance with one lump sum payment. The settlements are binding, and ensure that no further collection efforts or legal action will be taken on the settled accounts.

Debt Settlement America (DSA) is headquartered in Dallas, Texas and services clients across the nation. Since its inception in 2004, DSA has established itself as a leader in the debt settlement industry. DSA is a member of the US Chamber of Commerce, the Texas Association of Businesses, the American Bankers Association, and a Gold level member of the International Association of Professional Debt Arbitrators. DSA has been recognized as a TASC Best Practices accredited member company for the past three years.

To learn more about Debt Settlement America, or to receive a consultation free of charge, go to www.debt-settlement-america.com or call 866-387-3328.