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Credit Card Applications » News » Other » Credit card companies have to cure penalty rates after new reforms

Credit card companies have to cure penalty rates after new reforms

October 23, 2010
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There are a lot of credit card consumers who have paid a credit card bill in the past. If you have done it in the past, you might have been one of the customers who have had the shock of a very high and updated annual percentage rate which is also known as a penalty rate. As per the new credit card rules which became effective in February, credit card customers have the opportunity to cure their penalty rates and return their account to previous interest rate. As per the new provisions of the Credit Card Accountability, Responsibility and Disclosure or CARD Act of 2009, penalty rates have to be revised by the credit card issuers with the possibility of restoring the original penalty rates after there have 6 on-time payments by the customer. This is one of the couple of provisions in the CARD Act which deal with the increase rate increases in the past.

As per the new rules if the credit card company has instituted a higher penalty rate on an existing outstanding balance due to the customers' ability to pay the bills on time over 2 consecutive billing cycles, the card holder can bring the rates back their original by 6 monthly payments on time. The payments have to begin as soon as the rate jump happens which means if the customers misses 2 payments and notices that a penalty rate has been imposed, he or she must make 6 regular payments at the higher rate to ensure that the original rate is reverted back.

There are a few caveats which customers have to note in this regard. The new rule applies only on those situations where the new interest was applied because payment was delayed. The rule is not concerned with situations where there are new purchases. As per the CARD act, the credit card companies can increase rates on new purchases by giving at least 45 days of notice. Therefore for 6 on time payments, the card issuers need to change to pre-penalty interest rates but can levy a new rate on the new purchases. There is another potential problem in returning to original pre-penalty rate. This is when the annual percentage rate is tied to the prime rate. Majority of the credit cards today are variable rate cards which means that the APR will vary along with the prime rate. If there is change in the prime rate then cure rate wouldn't exactly be the pre-penalty rate.

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