Credit Card Rates Soar in Wake of New Laws

CreditCards.com reported today that average interest rates on new credit card offers are skyrocketing since the implementation of the CARD Act.

According to its data, the national average interest rate on new credit cards is now 14.56 percent, the second highest figure on record since the survey began in 2007. The higher rates are very clearly a reaction to the stricter rules being placed on the credit card companies. For instance, lenders are now limited in how much they can raise the interest rate on existing credit card accounts. There is no limit, however, on rates for new cards.

“The banks are trying to replace the income lost through the restrictions imposed by the CARD Act. Since they can no longer increase the APR on existing accounts at any time or for any reason, they are protecting themselves moving forward by starting all new accounts at a higher rate,” says Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling.

(I just want to add in a little ‘I told you so’ here. I wrote about the potential effects of the CARD Act on October 28th of last year:

“Credit card companies are in the business of making money, not philanthropically passing out credit for the convenience and best interest of their customers. If you take away their means of making profit they are going to change their practices to try to recover that money, or they are going to leave the business.”

Wow. Cunningham’s comment sounds surprisingly familiar!)

Still, consumers may be safer now that lenders must stick to government-mandated limits and standards, even if they have to give up lower interest rates for the security. The question now becomes: Will credit card companies be able to find enough new borrowers at the higher rates to sustain their business?