Loophole in CARD Act Results in Credit Card Rates as High as 59%

Credit card rates could reach as high as 59.9 percent, according to a new CNN Money article that explored the one down side of the Credit CARD Act: Interest rates. The article revealed that credit card rates are now hovering at near-record highs, averaging as much as 14.72 percent. However, for new customers with poor credit, rates could soar significantly higher because this is one area that the act did not touch on.

No Limits on Rates for New Customers

The Credit CARD Act, which took effect in Feb. 2010, made a lot of changes in regard to interest rates. Here are a few:

• Rates can’t be increased within the first year.
• The issuer must inform cardholders 45 days before increasing their rates, changing fees or making any other significant adjustments.
• If an issuer wants to increase rates (or make other changes) and the cardholder wants to cancel as a result, the cardholder can do so before the adjustments take effect.

There was also a rate cap placed so that fees for subprime credit cards cannot exceed more than 25 percent of the total credit line for the first year of purchase.

But credit card issuers seem to have found one loophole in the act. The cap placed on the cards is only applied in retroactive situations. In other words, new customers are not protected and can be offered outrageous rates that current customers won’t suffer.

APRs Have Increased More Than 20 Percent

According to CNN, APRs have climbed more than 20 percent over the past year. They hit an all-time high of an average 14.78 percent in mid-November as revealed by weekly data from CreditCards.com.

Unfortunately, these significant rate increases are for individuals looking at new credit card offers. Issuers know they can’t raise rates once they secure a customer, so they have decided to increase rates on the front end instead.

Bad Credit Scores Could See Rates of 59 Percent

While rates are increasing for all new customers, those with bad credit are expected to suffer the most. According to CNN Money, if your score is lower than 599, you’re likely to get stuck with an APR of 24 percent or higher–and that’s if you’re even granted a card at all.

Some cards won’t be denying customers, however. Instead, they plan to impose impossible rates. For instance, First Premier Bank offers a Gold MasterCard with an unbelievable 59.9% APR. Even more unbelievable is that the rate was actually dropped from 79.9 percent.

Even those with better scores–between 600 and 649–could see rates as high as 20 percent.

Unfortunately, this means if you’re looking to get your hands on a new credit card, you’d better first make sure your credit score does not fall into the subprime category. If it does, consider prepaid or secured cards or shop around until you find rates that best suit you.