Credit Card Rates Rise Ahead of Reform Law

As consumers look forward to new credit card rules intended to make their lives easier, many are also finding that the cost of using their cards is rising.

Efforts to compensate for the losses expected from the new federal credit card rules -- some of which take effect Thursday -- are part of what's driving card companies to raise interest rates and fees, some say.

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"Conventional wisdom says that if one of your large revenue sources is threatened in the future," said Samir Kothari, the co-founder of credit card analysis site, "you may choose to find other ways to make up that money."

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Some credit card industry and company representatives, meanwhile, downplay the impact of the new rules -- included in the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 -- on card rates.

"It's not the leading factor, it's not the only factor, it's a factor," said American Express spokeswoman Desiree Fish.

Scott Talbott of the Financial Services Roundtable, the trade group that represents some of the country's biggest credit card companies, said that rising rates are due to the treacherous economy, higher borrowing costs for banks, and consumers with riskier profiles.

The idea that banks are raising their rates in response to credit reform is "a red herring," he said.

No one disputes that rates are on the climb.

A recent study of 150 credit cards by BillShrink found that interest rates on purchases and balance transfers for card holders have grown nearly 20 percent from January to July of this year.

Among the companies raising rates the most, according to the study, were:

Capital One, raised purchase and balance transfer rates by an average of 50 percent, cash advance rates by 20 percent and penalty rates by 30 percent.

Citi, which increased its purchase and balance transfer rates by an average of 27 percent. Citi card holders with poor credit have seen their rates increase at least 50 percent.

Discover, which increased its purchase and balance transfer rates by an average of 30 percent. (Discover told that the company's online balance transfer rate is zero for the first 9 months following the transfer.)

US Bank has increased its purchase and balance transfer rates by an average of 33 percent.

In an e-mail to, Discover framed its rate hikes more in terms of business "soundness" than revenue. Rate increases in response to changes in the law "allows us to preserve the safety and soundness of our business while continuing to lend to credit-worthy consumers," said company spokeswoman Laura Gingiss.

Capital One said its rate hikes were due to "external challenges" and the economic downturn, while Citi attributed increases to regular reviews of customer accounts as well as "the dramatically higher cost of doing business."

Bank of America and American Express were found by BillShrink to have raised their rates the least, though it's unclear how AmEx would fare were the study updated to include August information: Some American Express customers received letters earlier this month informing them that the company was raising their rates on purchases and cash advances as well as raising late fees.

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