Is the CARD Act Causing High Interest Rates?
By: Brian O'Connell

Card issuers have continued to hike rates even with the CARD Act in place. Could the law itself be to blame?

When Washington politicians passed credit card reform the last thing they expected was for card interest rates to rise. But that’s exactly what’s happening. More surprisingly, the Credit Card Accountability Responsibility and Disclosure Act of 2009 and higher rates may be linked.

One possible culprit? The new law’s timetable.

The last portions of the CARD Act officially became law on Aug. 22. The act’s major provisions seekl to limit the rates and fees that credit card companies could charge their customers, but that’s not the way it’s turning out.

Synovate has the goods, this time with data showing that the average interest rate on credit cards rose to 14.7% in the second quarter of 2010 (up from 13.1% at the same period in 2009). That’s the highest upward spike since 2001. Perhaps even more telling, the gap between the prime interest rate and the average credit card rate (at 11.45%) is the widest since 1988, Synovate reports.

How did the CARD Act contribute to the rate hike? Synovate analyst Lauren Guenveur says the CARD Act bears a good deal of the responsibility, largely because it left so much time for credit card companies to hike rates in advance of the legislation becoming law. Card companies, she notes, knew that they had time to raise interest rates "before they could no longer do so freely." With the clock ticking down to the CARD Act becoming law, card issuers rushed to raise rates, setting the stage for the bigger interest rate averages consumers have noticed recently.

Of course, with the new limits on rate increases from the CARD Act now firmly in place, consumers can hope that 2011 will see lower interest rate levels – unless another surprise comes along and springs high rates on credit card customers.

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