Credit Card Issuers Raise Rates

You’ll get no mercy from the credit card companies. As part of a continuing trend credit card issuers are raising interest rates on cardholders in spite of the fact that the Federal Reserve is purposely keeping the prime rate low in an attempt to stimulate the economy.

Usually, and granted this is an exceptionally poor time for our country from an economic standpoint, financial institutions will raise and lower interest rates in lockstep with the Federal Reserve. But these are anything but usual times and the norm does not apply.

The Federal Reserve just wrapped up a meeting in which they announced that they will continue to leave interest rates, as they put it, exceptionally low. They also stated that rates would remain low for an extended period of time in an attempt to stimulate the economy.

Banks and credit card companies are raising annual percentage rates ahead of the credit card reform legislation that will go into effect in February. Those laws will curb the credit card companies ability to arbitrarily raise rates on their customers. So in effect they are getting their rate increases in now while they still can.

Another reason for the steady trend of higher interest rates is the fact that charge-offs are at record levels. A charge-off happens when the credit card issuer gives up on trying to collect on the money that they are owed by a cardholder.

So in order to mitigate those losses they turn around and raise the rates on their account holders that do in fact play by the rules and pay on time. They need to recover their money from somewhere and they do it by repricing credit card interest rates on their existing cardholders.

The Federal Reserve acknowledges that the availability of credit remains extremely tight and that is putting constraints on economic growth. It is also clear that all-important consumer spending is still stagnant as unemployment rate continue to rise and the housing market remains dormant.

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