Answers About Credit Card Interest Rates
Select from the following questions about credit card interest rates and interest rate changes.
- My credit card has a fixed rate. Why is the bank allowed to raise it?
- After I exceeded the limit (or made a late payment) on my credit card, the bank notified me that they intend to raise my interest rate. Can the bank do that?
- How often can the bank change the rate on my credit card account?
- The bank is charging a higher interest rate than my State allows. Is this legal?
- I was contacted by phone to apply for a credit card. The solicitor discussed a low interest rate and I agreed. But when I received the loan/credit card, the rate was higher. Can the bank do that?
- The bank raised my interest rate because I made a late payment on an account with another bank. Can the bank do this?
- Does the bank have to lower my interest rate after I make a series of timely monthly payments?
- I paid my balance in full and closed my account. Can the bank continue to charge interest and fees?
- I just received a notice saying that the rate on my credit card account is going to increase in 45 days if I do not call the bank to reject the change. Can I continue making purchases with my card at the existing rate until the deadline for rejecting the rate increases?
My credit card has a fixed rate. Why is the bank allowed to raise it?
Credit card rates can be fixed or variable. A fixed rate credit card means that the Annual Percentage Rate (APR or rate) on the account is not tied to an index that may change periodically. A fixed rate is set for a period of time. For credit card accounts, the term "fixed rate" does not mean that the rate cannot be changed over the life of the account.
In general, the bank may change the account terms of credit cards, including the APR, by sending an advance notice to the account holder. If the bank intends to change a significant account term, such as the APR, the bank must usually notify you 45 days in advance of the change. However, an advance notice of a rate increase is not required in some cases, such as when your credit card has a variable rate or a promotional rate that ends after a certain period that the bank has already disclosed to you.
In general, if you receive an advance notice of a rate increase, you can reject the increase for your existing balances and any transactions that occur 14 days or less after you receive the notice if you do so before the effective date of the change. However, you will not be able to reject an increase in the APR if you are 60 days or more late in making a required minimum payment on your account. You also will not be able to reject a rate increase for transactions on your account that occur more than 14 days after the bank sends you the advance notice of the rate increase.
The change in terms notice must advise you of your right to reject the increase in the APR. The notice will provide instructions for rejecting the change, and a toll-free number that you may use to notify the bank if you decide to reject the rate increase. You must reject the increase before the effective date to prevent the increased rate from taking effect.
The bank also must let you know if the bank will terminate or suspend your ability to use the account if you reject an increase in the rate.
Be sure to review your Account Agreement, which is the contract governing your credit card account. It provides information on changes that may occur to your account.
You should also know that starting in February 2010, additional limits on changes in credit card rates will become effective. Please check this Web site to stay informed of important information about credit card accounts.
Revised 08/19/09
After I exceeded the limit (or made a late payment) on my credit card, the bank notified me that they intend to raise my interest rate. Can the bank do that?
Yes, a national bank can usually change the terms on a credit card account as long as the bank notifies you at least 45 days in advance of a significant change.
Generally, you can reject an increase in the Annual Percentage Rate (APR or rate) before the effective date of the change unless you are 60 days or more late in making a required minimum payment on your account. To prevent the change in rate on your existing balances and any transactions that occur 14 days or less after you receive the notice, you must reject the change before the effective date of the rate increase. You will not be able to reject a rate increase for transactions on your account that occur more than 14 days after the bank sends you the advance notice of the rate increase. The notice that the bank sends you will provide instructions for rejecting the change, and a toll-free number that you may use to notify the bank if you decide to reject the rate increase. The ability to reject the rate change may be especially important to you if you are carrying a balance. The bank also must let you know if the bank will terminate or suspend your ability to use the account if you reject an increase in the rate.
Be sure to review your Account Agreement, which is the contract governing your credit card account. It provides information on changes that may occur to your account.
You should also know that starting in February 2010, additional limits on changes in credit card rates will become effective. Please check this Web site to stay informed of important information about credit card accounts.
Revised 08/19/09
How often can the bank change the rate on my credit card account?
For credit card accounts that have a variable Annual Percentage Rate (APR or rate), the rate will adjust periodically based on the disclosed account terms. For variable rate accounts, a change in rate based on the bank's agreement with you does not require advance notice if the rate is tied to an index that is not under the bank's control and that is available to the public.
If the bank wishes to increase the rate on an account that does not have a variable rate, the bank usually must provide you with 45 days advance notice and a right to reject the increase. Generally, you can reject the increase before the effective date of the change unless you are 60 days or more late in making a required minimum payment on your account. To prevent the change in rate on your existing balances and any transactions that occur up to 14 days after your receive the notice, you must reject the change before the effective date of the rate increase. The notice that the bank sends you will provide instructions for rejecting the change, and a toll-free number that you may use to notify the bank if you decide to reject the rate increase. The ability to reject the rate change may be especially important to you if you are carrying a balance. The bank also must let you know if the bank will terminate or suspend your ability to use the account if you reject an increase in the rate.
Be sure to review your Account Agreement, which is the contract governing your credit card account. It provides information on changes that may occur to your account.
You should also know that starting in February 2010, additional limits on changes in credit card rates will become effective. Please check this Web site to stay informed of important information about credit card accounts.
Revised 08/19/09
The bank is charging a higher interest rate than my State allows. Is this legal?
This may be legal because the maximum interest rate is determined by State law—in the State where the national bank has its headquarters.
You should review your Account Agreement, which is the contract governing your account, or any subsequent notifications regarding your account. These will provide information on where your bank is headquartered and any other change that may occur.
I was contacted by phone to apply for a credit card. The solicitor discussed a low interest rate and I agreed. But when I received the loan/credit card, the rate was higher. Can the bank do that?
Yes. The solicitor should have explained the steps the bank will take once you apply. Generally, the bank will review your credit report and the information you provide to determine if you meet the criteria for the offer. After the review is completed, you may not qualify for the terms that you requested—or even for the card itself.
If the bank is a national bank and you want to file a complaint with the OCC, visit the OCC complaint page.
The bank raised my interest rate because I made a late payment on an account with another bank. Can the bank do this?
Yes, a national bank can generally increase the Annual Percentage Rate (APR or rate) that applies to your credit card balances based on late payments on accounts with other banks. However, the bank can only do so if it discloses the new terms to you at least 45 days in advance. Also, you generally can reject the increase unless you are 60 days or more late in making a required minimum payment on your account. You also will not be able to reject a rate increase for transactions on your account that occur more than 14 days after the bank sends you the advance notice of the rate increase.
Be sure to review your Account Agreement, which is the contract governing your credit card account. It provides information on changes that may occur to your account.
You should also know that starting in February 2010, additional limits on changes in credit card rates will become effective. Please check this Web site to stay informed of important information about credit card accounts.
Revised 08/19/09
Does the bank have to lower my interest rate after I make a series of timely monthly payments?
Generally, national banks do not have to lower interest rates due to timely payments unless your Account Agreement calls for such an adjustment. As the contract governing your credit card account, the Account Agreement provides information on changes that may occur to the account. If you have a question about this, please contact your bank.
I paid my balance in full and closed my account. Can the bank continue to charge interest and fees?
Banking laws do not identify a specific method for calculating finance charges on a credit card. The law does require that the bank disclose to you how finance charges are computed on your account. Finance charges are not computed in advance on credit cards. Often finance charges are calculated on the average daily balance of the account. The answer to the question depends upon the terms of your agreement with the bank.
For example, you have been carrying a balance for a while. You receive your account statement reflecting a $1,000 balance. The minimum payment is $50 and it is due on the 25th. You decide to pay the balance in full. The payment posts on the 24th. Can the bank assess finance charges on your next statement?
The answer to that question could be yes or no. Whether or not finance charges would be assessed, depends on the terms of your agreement with the bank. Although you paid the account in full, you still carried a balance on the account for most of the month. Some banks may assess a finance charge because there was a balance on the account from the first of the month until the 23rd of the month. Or you may not, if the bank agreed to waive any accruing finance charges if you pay the balance in full.
Finance charges imposed after the balance is paid in full are commonly referred to as "residual interest" or "residual finance charges."
We would recommend that you review your account agreement for information on how finance charges are calculated on your account, or contact your lender. If you feel that the fees or interest were assessed in error, you should file a written billing error dispute. The information on filing a written billing error dispute and the address to which the notice should be sent are listed on your periodic statement.
I just received a notice saying that the rate on my credit card account is going to increase in 45 days if I do not call the bank to reject the change. Can I continue making purchases with my card at the existing rate until the deadline for rejecting the rate increases?
No, you will not be able to continue using your card for transactions at the existing rate for the entire 45 day period. The existing rate will apply to transactions that occur 14 days or less from the date the bank provided you the notice. After 14 days, the new rate will apply to further transactions. At the end of the 45-day period, the bank can begin charging the new rate for any balances you accrued after the 14th day after the bank sent the notice. The notice you received may not provide you with this information, because it is not required under current Truth in Lending Act regulations. However, the bank is required to tell you in the notice if you will no longer be able to use the card if you reject the change.
If you wish to avoid the rate increase, you should consider calling the bank to reject the rate increase as soon as you get the notice and/or not using your card for further transactions.
Phone: 800-613-6743
TDD Number 713-658-0340
TTY: (800) 877-8339 (via a relay service)