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Opting Out of Credit Card Does Not Guarantee Rate
Consider this scenario, a customer opts out of a card agreement, because interest rates are going up to 15.99%. Customer closes the account to stay with the 9.99% rate and makes regular payments.
Customer then receives notice that credit card company has raised interest rate to 13.99% because customer had missed the second opt-out letter. Credit card company says they can keep sending opt-out letters to raise the rate whenever they want. Now customer is stuck with a closed account at 13.99%.
Most people think that once they opt out and close an account, they are covered unless they make a late payment. Not so. Even after you opt out, under the existing terms, the bank may still reserve the right to raise the rate on your account with as little as 15 days' advance notice.
Banks send letters before each change in terms. Cardholders have to opt out each time to avoid the latest change to their account. Just because a customer opts out once does not save them from all the other changes in terms.
In other words, opting out once does not guarantee the rate on the existing balance. You have to read correspondence from your card company and opt out again if necessary. Opting out also does not always close the account.
Sometimes it means you cannot use the card for future transactions. So make sure you understand the conditions of the opt-
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out before you reject the change in terms.
Once the Credit Card Accountability, Responsibility and Disclosure Act, or Credit CARD Act, takes effect February 2010, issuers will not be able to apply a rate increase to an existing balance unless the borrower is at least 60 days delinquent, the variable rate is increasing due to the operation of an index or a promotional rate expires.
So if the consumer cancels their card, the entire balance is protected as an existing balance. Closure will not trigger the default rate or require the cardholder to pay the debt in full immediately.
The borrower will not see a rate hike imposed on the outstanding balance unless one of those three exceptions applies. Unfortunately, this section of the law does not go into effect until next year, which does not help consumers right now.
Calling customer service and explaining what happened can possibly get a lower rate reinstated. Other options are to pay off the balance or transfer the debt. Consumers will need a good credit score to qualify, though, and should first consider all the caveats of transferring a balance.
Be a smart consumer. Always read the fine print to protect your credit card accounts. This information was shared through "Ask the Experts" at Bankrate.com, Credit Card Advisor Leslie McFadden.
Janine Rywak
County Extension Director
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