Fixed-Rate Credit Cards May Vanish
Posted on July 21, 2009
Filed Under Chase Cards, Discover |
Could fixed-rate credit cards soon be a thing of the past?
In June, Bank of America Corp. and J.P. Morgan Chase & Co.’s Chase Card Services notified some cardholders that their fixed rates were being converted to a variable rate tied to the prime rate. In March, Discover Financial Services also notified some customers that their fixed rates were changing to a variable one.
Spokespersons for the banks—who declined to provide details on the numbers of cardholders affected—said the changes were an attempt to better manage the businesses’ costs as market conditions change.
Nearly all of Bank of America’s fixed-rate cards will be converted to a variable rate. The exceptions: some student accounts, accounts in debt-assistance programs and some newly opened accounts, says spokeswoman Betty Reiss. At BofA, customers will not be able to opt out of the changes, which they will start to see with August statements.
Chase customers, however, will be able to opt out of the changes, although they will have to close their accounts. Chase spokeswoman Stephanie Jacobson said the switch was prompted by the company’s “changing costs for funding credit-card loans.” Discover cardholders were also allowed to opt out of the changes, which took effect May 1, but had to close the accounts.
With a variable rate, rates generally rise as interest rates rise, and fall in a declining-rate environment. With rates already near a bottom and expected to rise, most consumers probably won’t see their rates fall further.
The changes will make it easier for issuers to bump up the rates they charge without notifying cardholders. By contrast, fixed-rate cards typically must first mail a notice to clients announcing any rate changes. The changes come at a time when issuers are rushing to comply with new legislation that will soon limit their ability to raise rates on existing balances, require them to notify customers at least 45 days in advance of any changes to their terms, and make them eliminate other confusing practices.
by Jane J. Kim
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One Response to “Fixed-Rate Credit Cards May Vanish”
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If fixed rate will vanish, credit card holders will be having a hard time monitoring the interest rate that they’ll be paying. The credit card companies should inform the consumers if there will be changes on the interest rate.