Double Whammy: Higher Credit Card Rates, More Credit Card Debt
When President Obama signed legislation that restricts many credit card practices that consumer groups have long complained about, bank executives said it would force them to raise interest rates across the board.
Looks like that might be happening already.
According to IndexCreditCards.com, which tracks the industry, credit card rates hit an 18-month high in July. The Web site’s review of rates offered by issuers such as American Express, Bank of America, Chase and Citi found that the average rate on consumer cards was 14.94 percent, which is more than a full point higher than it was in March.
Both customers with bad credit and those with good credit were seeing higher rates, the researchers found.
“It’s a double whammy for consumers right now,” says Adam Jusko, founder of IndexCreditCards.com. “Card issuers were already raising rates in response to higher defaults in an unstable economic environment. Then the new credit card law was passed. While the law doesn’t fully take effect until February, it’s provided issuers with a second justification for rate hikes.”
The Web site also offered average rates for specific types of cards. For instance, the average rate for consumer cards with rewards programs was 15.32 percent versus 14.04 percent for non-rewards cards. Student credit cards had an average of 15.33 percent.
And in more credit card news, national research and policy firm Demos found that the average credit card debt of low- to middle-income indebted households was $9,827. Credit card debt has quadrupled since 1989, the firm found in its second national survey of households whose incomes fell between 50 and 120 percent of the local median income.
What’s worse, one out of three households reported using credit cards to cover basic living expenses for an average of five out of the last 12 months.
The new credit card law won’t go into effect until February. It’s unclear how these households will reap the benefits of the law.
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