Are they Pulling the Plug on Affordable Credit Cards

It has been in the news recently that the federal law that governs the policies that apply to credit cards, is lining up a new amendment that restricts credit card issuing companies from increasing interest rates on fixed rate credit cards. This might seem like good news for the consumer if it weren't for a certain disturbing fact; major credit card issuing banks like Bank of America are quietly moving away from the fixed rate credit card because the banks see them to b e too tightly regulated now. Fixed rate credit cards today make up about two thirds of all credit cards issued. There have been scattered reports that the banks are at this moment changing a large portion of the fixed rate credit cards on their books, to turn them into variable rate credit cards before the law hits them.

But what exactly is a variable rate credit card that the banks seem to favor so much? A variable rate credit card is one in which the interest rate you pay on your outstanding balance is a dynamic one. The bank uses an interest rate formula that changes your rates in step with something they call a prime rate. The Federal Reserve prescribes a rate, currently held at 0.25%, which is meant for credit card issuing companies to use as some kind of reference point. The banks usually add on a few fixed-number percentage points, usually 3, to arrive at the prime rate. If you find yourself offered a variable rate credit card, you will end up never knowing what to expect the following month: your rate can change every month. The credit card companies can even prescribe an arbitrary interest cutoff that they will never go below even if the prime rate dips below that. This is actually quite a popular practice these days.

If your credit card company turns your fixed rate card into variable rate card, you could technically say, "No thanks", but then you will be faced with canceling your credit card and hurting your credit rating. If you insist on being allowed to continue as a fixed rate card, you could be denied your request, as they set fixed-rate cards aside for their special customers. This kind of large-scale switch to variable rates, have happened in the past; at the time, customers reacted with en masse demands, and their fixed rates were reinstated. If that does not work this time, customers can just opt to not hold on to an unpaid credit card balance. If there is no balance, how could they charge you an interest?

Linus Orakles
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