A cure for penalty rates by issuers

Sunday, October 3rd, 2010

At some point in time, most customers would have faced a situation of having missed a credit card payment. It could have occurred due to simple oversight, or due to the misplacement of a bill, or the fact that the person concerned was travelling and hence unavailable to pay off the bill. Paying a bill late once in a while is alright. But if one gets into the habit of missing more than one payment on more than one occasion, then the card holder would see a sharp rise in the APR`s or the penalty rates.

With the new credit card rule in effect, it is possible to get one`s account back into its original interest rates and “cure” the penalty blues. As per the new provisions made by the credit card accountability, responsibility and disclosure act (2009) the issuers are expected to review the interest rates and restore the penalty rates to the original rates after six consecutive payments are made on time.

When the customer defaults two billing cycles, then the penalty APR comes into place and this can be reverted to the original rates only after 6 on-time payments consecutively (at the higher APR). This is done automatically and without any request from the customer.

However, this new rule is applicable only on the existing balance that has been overdue for more than 60 days. This would not be applicable on fresh purchases. As per the CARD act, an increase in interest rate or the new rate can come into effect after a 45-day notice period. If the card holder satisfies the requirements by making 6 on-time payments and is still left with some balance, then the pre-penalty rates have to be charged on the remaining balance but new purchases can attract fresh charges.

Most credit cards these days are variable rate cards (APR could fluctuate with the prime rate). If there is a change in prime rate during the 6-month period (while making payments on time) then the “cure” rate would vary from the pre-penalty rate.

This change brought about by the new regulation will not help cardholders who have shaky credit and the ones who are in a permanent “debt traps” since the requirements of six on-time payments would not be met. It is a small step and has limitations, as in spite of this provision customers will be paying higher rates for some period will remain in debt. There are no limitations on penalty rates as that would remain under the discretion of the companies. Even if card holders clear off payments within the six on-time payments, they will not see a break in their interest rates.

Latest Credit Card Issuers News

Thursday, October 12th, 2017
The Walt Disney Company and Chase Card Services recently announced that they will continue their longstanding relationship, extending their co-branded Disney Visa Card, Disney ...
Sunday, July 9th, 2017
According to the 2017 Direct Retail Banking Satisfactions study, Discover is the second of the nine participating U.S. direct banks, scoring 869 points out of 1,000, being one in ...
Wednesday, May 10th, 2017
Both existing American Express customers and new applicants will enjoy new benefits of being a Platinum Card holder, after Amex debuted a new card design, as well as a slew of new ...
Tuesday, December 6th, 2016
It seems that people are always looking for an easier and more convenient way to pay for their purchases. Still, it’s taken some time for folks to get comfortable using their ...
Wednesday, June 22nd, 2016
More and more people are finding out something that used to be difficult to find out—at least for free. Credit scores used to be top-secret and hard to get your hands on, unless ...
Best Credit Offer
Click the Compare link to compare the checked cards side-by-side at the comparison table.
Consumer Rating: 4 / 5
Horizon Card Services Horizon Gold Credit Card
Copyright © 2001-2017 BestCreditOffers.com All Rights Reserved.

* The BestCreditOffers.com webpage is a free service and an information resource for credit cards and financial products and services available to eligible United States consumers. BestCreditOffers.com does not offer any warranties and is not a direct service. There are no guarantees for approval or offers when applying for a credit card. Please refer to the application if you would like more information on each credit card. When you click "Apply" for a particular credit card, please take the time to review the terms and conditions of the product/service at the issuer's website. All logos on the BestCreditOffers.com website are property of their respective owners.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer. Opinions expressed here are the author's alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. Reasonable efforts are made to present accurate info, however all info is presented without warranty. Consult a card's issuing bank for terms & conditions.

BestCreditOffers.com makes every effort to keep information up to date and accurate. However, the information regularly changes and is presented without warranty. Therefore, we strongly recommend all our readers to visit the credit card application page by clicking "Apply Online!" button to review the detailed credit card's terms and conditions. Note that BestCreditOffers.com may be compensated by the credit card issuers when the readers apply for a credit card through this site.

BestCreditOffers.com is an independent, advertising-supported website which receives compensation from the credit card issuers and companies whose offers appear on the site. Compensation may impact how and where products appear on our site, including, for example, the order in which they may appear on the site pages. BestCreditOffers.com does not review or list all available financial or credit offers.

Disclosure: Not an access card.

User Generated Content Disclaimer: These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.