As a former consumer credit compliance officer at a top 10 bank I understand the need for banks to not be painted into a corner when their cost of funds can change over time. That is why they should be able to change rates with resonable notice and by giving the borrower an option to keep the old rate on existing balances and forego future credit access.

However, it seems as if the “changing market conditions” were created by the the lenders themselves through bad lending decisions made over the past decade. With their costs of funds at an all time low the margin between their cost and current credit card and to a lesser extent loan rates appear to be at historical highs. Not only has the tax payer bailed them out so they continue to exist the consumer now get to pay higher interest costs to insure future profitability despite their failures.

Switching a borrower from fixed rate to variable rate under the current historically low rate market conditions and it not being considered a rate increase borders on criminal. The effective result is a rate increase without proper notification over the life of the contract.

What ever happened to the customer is always right????????????

But this is far from a “loophole” in the Credit CARD Act. Similar language has been in Regulation Z since 1981 (which is written by the Federal Reserve to implement the Truth in Lending Act – the law the Credit CARD Act amends). That language is in 12 C.F.R. 226.9(c) – and here is the language from the Federal Reserve’s staff commentary:

“9(c) Change in Terms
1. Changes initially disclosed. No notice of a change in terms need be given if the specific change is set forth initially, such as: Rate increases under a properly disclosed variable-rate plan, a rate increase that occurs when an employee has been under a preferential rate agreement and terminates employment…….”

Currently, when an index changes no advance notice of the change-in-terms is required (currently it is a 15-day notice until August 20, 2009 when the 45-day notice is required).

If this was a “loophole” and Congress closed it in the future, the change would not be a shift from “fixed-rate” to “variable-rate” – it would be an additional switch to less credit cards being offered and consumers needing to seek personal loans instead (not necessarily a bad thing).

Also, another provision of the Credit CARD Act – Section 103 – limits the ability to market a credit card as “fixed.” If a credit card is called “fixed” in advertising or other areas – its rate can never be increased. Is that practical for an institution to offer when interest rates are bound to increase in the next few years? Remember, credit card accounts are open-end credit and can extend indefinitely into the future. If a bank stayed with “fixed” rate cards – it would have to anticipate those increases now; who can guess when and how much interest rates will change??

The solution by many card issuers is to remove the guessing about interest rates in the future – and that is done by moving to variable-rate accounts.

Health care will be no different.

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/05/AR2009070502770.html

When credit card companies offer someone a variable rate it is usually something like PRIME + 2.49%, for example. In this case we will assume that prime rate is 5.00% (5.00%+2.49%=7.49%, 7.49% is what a customer would be paying on his or her credit card). When the prime rate goes up to lets say 5.25%, this customer now has a rate of 7.74% (5.25%+2.49%=7.74%), which changes on a monthly or quarterly basis. So, if the rate had been at 7.49% (the original rate, prime plus 2.49%) on January 21st (assuming that a customer has a cycle date of the 21st) and on the 31st of January prime rate was increased to 5.25%, there would be no way for credit card companies to notify customers of this change, thats 45 days in advance. How? Since their bill went out 10 days ago, and is due by the 21st of February (assuming they have 30 days to pay it back). However if the banks were to send a notice in time for the customer to pay the following months bill, the 21st of March, that would be more than 45 days where credit card companies would lose money, that they would have otherwise earned on the 0.25% increase in prime. Unless the FED decides to give banks notice that prime rates would increase/decrease 45 days before they actually do increase/decrease.

This is different than when a customer has a 7.90% fixed rate and credit card companies have to notify him or her that the rate will go up to 9.90%, the new rate could be fixed or variable, whatever the credit cad companies decide. In this case credit card companies can send a notice on the 31st of January stating new rate will be 9.90% starting on March 21st cycle date…

That is why they do not need to give a 45 day notice for variable rate changes. Sorry for the long reply.