Banks are quietly changing the terms of millions of credit card accounts as they brace for a tough new law that will limit rate hikes.
The law would restrict interest rate increases unless a credit card has a variable rate. So at least two major lenders are switching their cards with fixed rates to -- you guessed it -- variable rates.
"It's completely unfair," said Linda Sherry, a spokeswoman for Consumer Action. "It's an end run around the intent of the new law."
That law is the Credit Card Accountability, Responsibility and Disclosure Act, which President Obama affixed with his signature in May. Its various provisions will be phased in between next month and February.
Congress passed the law to curb what politicians called abuses of cardholders by lenders, including runaway interest rates and constantly changing terms.
In response, banks have scrambled in recent weeks to make changes to their card offerings before the new rules take effect. I wrote last week about how JPMorgan Chase is increasing its monthly minimum payment to 5% from 2% of the balance for about 1 million cardholders.
Now comes the looming demise of fixed-rate accounts.
Los Angeles resident Victoria Afonina received a letter from Bank of America the other day informing her that "as a result of a change in our business practices, your annual percentage rate will use a variable rate formula based on the U.S. prime rate."
"If the prime rate changes," it said, "your APR will vary accordingly."
Afonina, 44, told me she had to read the letter several times to understand what BofA was saying.
She said she'd been a cardholder with the bank for about five years and had enjoyed a relatively low fixed rate of 9.9% any time she carried a balance.
"When I finally understood what they were saying, and that my rate could change every month, I was shocked," Afonina said. "I'm a good customer. Why are they treating me like that?"
Good question.
"The change from fixed to variable rates allows us to better manage our business as market conditions change," said Betty Riess, a BofA spokeswoman.
And those new federal rules. . . ?
"Legislative and regulatory changes that limit our ability to re-price for risk were a factor in our decision," Riess acknowledged.
Under the new variable-rate formula, BofA cardholders won't experience a rate increase when the change is made next month.
