More than half of all of the people that have consulted with Consumer Recovery Network over the years, have indicated that credit card interest rate increases had made it harder for them to keep up with their monthly payments. Why are these increases happening? In many cases it’s because of something called the universal default, a provision that’s in most credit card agreements.
The universal default clause gives banks the right to increase your credit card rates for virtually any reason. I refer to the practice as rate jacking. Whatever you call it, the practice is bad news for consumers. You can be rate jacked even if you were never late making a payment on the credit card with the increased rate!! Basically, the universal default clause gives banks free rein to increase the interest rate you must pay on your outstanding credit card balances for just about any reason.
I have been rate jacked!
Here’s how rate jacking works: After conducting a periodic review of your credit history, the creditor decides that you are too close to your credit limit on some of your credit accounts, notices that you were late making a payment on one of those accounts, or discovers that you recently opened one or more new accounts. As a result, it raises the rate on your current balance and on any new purchases you may make with your credit card. If your finances are already shaky, having that rate increased may be all it takes to push you over the edge, especially if your other card issuers follow suit once they see that you’ve already been rate jacked.
If you are about to be rate jacked, the creditor will send you a notice telling you that your interest rate is going up. When you receive the notice, write the card issuer to clearly state that you do not agree to the change in terms and that you will not be using your card anymore. If you don’t and you use the card after the effective date of the rate increase, you’ll have implied to the card issuer that you agree to the new terms of credit.
You should also call the customer service number on the back of the card to cancel the account. A couple months later, order copies of your credit reports to confirm that they show that the account was canceled and to make sure that each of the reports show that you did the canceling, not the card issuer. (Note: Although your credit score will take a hit when you cancel an account, the damage won’t be as bad as if the card issuer does the canceling.) If there are any automatic debits scheduled for the account you are going to close transfer them to a different account.
Options when you can no longer afford high interest credit card bills.
In our current economy, we can expect creditors to become more risk averse. It makes sense that they would begin practicing restraint again. However, arbitrarily charging consumers additional interest on their credit card balances, especially considering that not very long ago banks were encouraging those very same consumers to use their credit cards for everything and making it easy for them to get cash advances from their accounts, is tantamount to theft. Furthermore, in many instances it does the very thing that banks want to avoid — causes consumers to default on their accounts! But for now, rate jacking is legal. However in February 2010, when the Credit Card Accountability Responsibility and Disclosure Act of 2009 goes into effect, rate jacking will, for seemingly arbitrary reasons, become illegal. Until then however we can expect to hear a lot more about it. Recently for example, Citibank announced that it had rate jacked 15 million of its account holders.
If you’ve been rate jacked and have hit the debt wall, or if you are simply struggling to keep up with your credit card debts, explore your options, including setting up a debt management plan with a reputable nonprofit credit counseling agency, settling your debts or filing for bankruptcy. For information on these options and help deciding which one is best for you, check out our newly published free online debt relief program.