My Bank Hiked My APR. Can It Do That?
By Erica Sandberg
November 13, 2012
Bank of America is my credit card issuer, and I want to know if they are allowed to change the interest rate any time they feel like it? I used to have an 11 percent APR, and they just told me that they are bringing it up to 24.9 percent. I have never been late on a single payment. This is outrageous and wrong. I worked hard to get this card. Should I close it and start again with a different company? Can BofA do whatever they want these days? — Kevin
Credit issuers do not have total freedom! In fact, they must work within specific guidelines and rules. Many laws govern the credit industry, but the main one issuers must comply with is the Credit Card Accountability, Responsibility and Disclosure Act of 2009 — usually just referred to as the CARD Act.
The CARD Act details when and how a creditor may adjust a cardholders’ interest rates. For example, they may only raise it if:
- The account has a variable, rather than fixed, rate of interest. That means the interest rate is tied to an index such as the U.S. prime rate. When that goes up, so does your interest rate. This may happen monthly or quarterly, and your account agreement will tell you how often this might happen. Even if you had a variable rate on your account, though, it would not cause such a significant hike.
- You failed to make at least the minimum requested payment for more than 60 days. Judging from your letter, this is not your situation, though it’s important to know just in case you ever do fall behind.
- You arranged, but messed up, a hardship plan. For example, your rate might have been increased due to you being delinquent, but you agreed to pay on time for the next six months to get the rate down. If you didn’t fulfill that promise, the rate would go back up. Again, this is not the case for you, but it is one of the provisions to note.
- The account had a low promotional rate, but it has expired. Now this is a real possibility. Maybe, when you got the account, the rate was low — but that rate was only supposed to be in effect for a few months or a year. If that’s the case, then you accepted those terms when you applied for the card.
- The bank gave you 45 days’ notice that it would raise the rate on future purchases. Perhaps this is the letter that you received. If so, your issuer can’t charge a higher rate on the balance that you already have, but it can for future purchases. You can reject the higher rate, however, if you close the account. If you do, you’ll have to comply with your issuer’s requirements for paying off your remaining balance. It may require you to pay off the balance within five years, or it may require you to pay double your previous minimum payment until the balance is zeroed out.
As far as what you can do now, well, I think a nearly 25 percent APR is too high. Here are your options for resolution:
- Negotiate. Call Bank of America and explain that you’d like to keep the lower rate. Point out how you’ve been such a terrific cardholder and that you’d like to keep BofA as your primary credit card company. Remember, banks want to keep good customers.
- Consider a balance transfer. If Bank of America won’t budge, go ahead and check out what others are offering. Some cards don’t even charge balance transfer fees. Apply for the one that looks best and move on.
If you do take advantage of a card with a better rate, I recommend that you keep the original card open, as closing it could hurt your credit score. When you have the new account, don’t charge more on it. Just concentrate on paying the balance down to zero. Once you’re in the clear, you can use both credit cards, making a point to always pay in full as soon as the bill arrives, which removes any APR hike-related stress in the future.
Got a question for Erica? Send her an email.