The new rules and regulations of the CARD Act came into effect last Sunday. These rules are targeted at curbing banks from making adhoc changes to the rate of interest that can affect customers adversely. While the consumers were very happy with this move, financial experts worry that the banks may now find newer ways to recover the money they lose in the process.
As per the data gathered towards the end of the second quarter of the current financial year, the average APR on the credit cards hovered around 14.7%. This is a significant increase as compared to the 13.1% APR that was levied by banks at the same time last year. Synovate, Aegis Group PLC`s research firm recently conducted a survey that revealed this fact. As per the results of this research conducted by this firm, the current rates are among the highest for the customers since the last nine years. The standard credit card rates set by the banks and other financial institutions on their cards and the average rates on credit cards vary by 11.45%, which is the highest rate of difference over the last two decades.
There are a number of reasons for the credit card lenders to increase the annual percentage rate on their credit cards. First of all, the CARD Act of 2009 clearly outlines that the banks cannot increase the interest rates on the cards for consumers. This has come as a major setback to the card lenders as most of their revenue gets cut off.
The Chief Executive of the credit cards division of the Citi Group, Paul Galant, said that the Act has brought about significant changes and the risks associated with lending cards has only seen a change.
Prior to the act taking effect, banks had the liberty of increasing the APR for consumers who failed to make their payments on time. However, with the Act coming into the play the credit card lenders have to give a notice of at least 45 days to the consumers and also offer them an option to close the card is they are not happy with the increased rates. The recently implemented rules for credit cards also have a set upper limit for the penalties that can be collected from the consumer.
Based on all these changes that have come into play, banks are now entering the safe mode and are offering high interest rates on the credit cards initially itself so they do not face any loss. Thus, it is no wonder that the applicants who are applying cards in recent times have had to shell out more than those who had applied for it in the past.