Page 30 - Book6E

Who goes a borrowing, goes a sorrowing.
— Thomas Tusser
22
Credit card rate increases would occur at any time and for any reason. And, of course, credit card companies have taken advantage of this right and have taken it for granted that the majority of consumers won't or don't take note of these increases. The Act prohibits arbitrary and immediate interest rate increases. Under the guidelines found in the Act, an interest rate increase must be disclosed to the consumer 45
days before it goes into effect. This gives the consumer more time to use reward points, which must remain as they are for the 45 days. Credit card companies have been able to retract or reduce reward points at will.
With the passage of the Act, a consumer now has the added opportu- nity to formulate a new plan to pay off the debt before the interest rate increase goes into effect. For example, a consumer may want to increase his monthly payment on the specific credit card that he knows is going to be raising interest rates and decrease payment on accounts offering lower interest rates. The Act, which addresses varying interest rates on partial balances which comprise the total balance, offers clear advantage to the consumer in that the credit card company must now apply excess payment to that balance with the highest interest rate.
In the past, even though the consumer has expected the credit card companies to apply payments to the balances with the highest inter- est rates, the issuer routinely applied the payment to the charges on the lowest interest rate. To illustrate this point: a credit card company may have offered a promotional rate of only 3%, but it may have only applied to the first $500 charged; on an additional $500 charge, an issuer was able to charge a cash advance rate of a whopping 28%; the next $500 charged may have been a regular purchase rate of interest.
This provided the issuer with a higher assessed interest for a greater amount of time. To further use the illustration above, historically, credit card payments would first be applied to the $500 balance on
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