Card Act Loopholes


We are only 18 days away from the major provisions of the CARD act becoming effective.    Regular readers know that I love this law, but realize that banks can and will do everything in their power to evade it’s provisions.   At this point, it is all speculation as to what tactics they will find effective to increase their profits at the expense of the spirit of the law, but you can bet they will.   Two of the more respected sources for consume information have taken a close look at the CARD act to try to find likely loopholes, let’s see what they found:

Consumer Report’s Defend Your Dollars!

Consumer Reports looks into what’s not covered by the CARD act.    A lot of it is well known to people who were following the debate over the CARD act last spring.     The biggest disappointment for many die-hard consumer advocates is that there will not be any caps on interest rates.      While there is a 45 day waiting period before banks can raise rates on cards marketed as “fixed rate”, any card with a so-called “variable rate” will not be subject to those restrictions.    Realistically, I view this as a language restriction rather than an effective form of regulation.    Simply put, expect all of your cards to give you notice that they are no “variable rate” cards and can change your rates, even on existing balances, at any time.   While this is less deceptive than calling such cards “fixed rate” when they are not, the end result to the cardholder will be the same.

They point out that banks will now have to give you 45 days notice before any changes to your account, but as always, they can curtail your credit or close your account with no notice.

BankRate’s Take

The popular website BankRate exposes several CARD act loopholes in their list of 5 tips for the new credit card era.  They cover the 45 day advance notice issue, but also talk about a retroactive rate hike loophole.    The gist of it is that if you are late with your payments by over two months, they can still hit you with a penalty rate hike.   Over the limit charges are no prohibited, unless the bank can get you to opt in for it.    I suspect that people will get all sorts of mailings and/or be asked to opt in when they call customer service on unrelated matters.    I would be disappointed, but not surprised, if there were some sort of opt in clause buried in a contest submission form or some other correspondence.

Finally, BankRate suggests that we may see increased annual fees.   I suspect banks will go slow with this, in order to see what the market will bear.    Banks spend all sorts of time, effort and money to acquire new customers, and they don’t want to the drive them away by increasing annual fees too quickly.    If you are paying an annual fee, my advice remains to take a sober look at whether the fee is paying for itself before renewing.    Many high annual fees are worth the extra perks you get, while some very low annual fees are a complete waste of money.     I tolerate a $45 annual fee from my Starwood Preferred Guest card because it’s award points are so valuable.    I would cancel any of my other cards if they decided to charge  an annual fee.


The next few months are going to be a time of unprecedented change in the credit card industry.   Stay tuned to this blog and others in order to learn the new landscape and how to use credit cards for your maximum advantage.

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