Credit card rate hikes affect almost all of us
According to a recent user poll conducted by CardRatings.com, 86% of people have had their rates hiked within the past six months.
This figure even shot past the pessimistic prediction CardRatings' founder had made several months ago, when he predicted that four out of five credit card users would be subjected to interest rate increases.
"I didn't expect it to be those kinds of numbers, quite honestly. That's pretty staggering," CardRatings founder Curtis Arnold told WalletPop in an interview. Keep in mind, these increases are on top of a bevy of new and raised fees card companies have piled on as well.
While the CARD Act has numerous benefits and protections -- for instance, issuers can no longer raise your interest rate any time, for any reason, without ample warning -- it also contained enough loopholes for card companies to exploit to find new ways to make up those lost profits. Many of them raced to raise rates ahead of the Feb. 22 deadline. Since the new legislation didn't include a rate cap, customers are experiencing sticker shock.
In addition to the impact of the CARD Act, Arnold says other reasons behind the increases are the economic climate in general and the climbing rate of delinquencies and chargeoffs.
"It speaks to the economic conditions of some of the card issuers where they're grasping for straws trying to offset the CARD Act as well as [dealing with] the chargeoff rate that's gone through the roof," he said.
Just how high are these new rates, anyway? According to official data from the Federal Reserve, the average rate for credit card interest was 14.37% in the fourth quarter of 2009, up just about one percentage point from 2008, when the average was 13.36%.
But Arnold says this isn't really reflective of what many Americans are experiencing since the above rates are for new cards and don't include existing accounts that have been hiked. Arnold also points out that delinquency rates, as well as rates for conveniences like cash advances and balance transfers, are growing at a rapid clip.
This hurts average American consumers, Arnold says, because those higher interest rates make it tougher for them to pay off their balances. "More money's coming out of their pocketbooks, out of their budget or purse each month, for servicing their debt."