In a bid to act before a new Credit Card Accountability, Responsibility and Disclosure Act (CCARD) kicks in, Bank of America and JPMorgan Chase have begun switching some of their card clients who have fixed-rate credit cards to potentially higher variable rates – reported Reuters.
In May this year, Barack Obama signed into law the CCARD Act, imposing new rules and regulations on card rates and fees. It was adopted in response to anger among consumer advocates and 90 million recession-hit cardholders, who can not afford high costs. However, the card companies got a breather as the law is not going to come into full effect until next February, giving them a window of opportunity to alter some of their policies.
The two US banks plan to attach more cardholders’ rates to the prime rate, a benchmark that is traditionally 3% points above the Fed’s key lending rate. With the Fed’s target rate at an abnormal 0 to 0.25%, the prime rate is 3.25%, a level last seen in 1955. Yet when the central bank starts boosting its target rate, the prime rate should follow, boosting borrowing costs.
Betty Riess, Spokeswoman of Bank of America, said: “Switching to variable rates enables us to better manage our business as market conditions change. The variable rates will not at this time result in rate changes, and that customers will see the variable rates beginning on their August statements.”
Stephanie Jacobson, Spokeswoman of JPMorgan Chase, said: “Variable rates reflect Chase’s changing costs for funding credit card loans. As a result, our customers may benefit from lower rates when the costs to Chase are decreased, or may experience higher rates as costs increase.”
