Banks Raising Credit Card Interest Rates Ahead of New Credit Card Rules

Banks and credit card issuers have been raising credit card interest rates before the new credit card rules take effect next year drawing the ire of law makers.

The Senate Banking Committee chairman, Christopher Dodd, D-CT, is pushing legislation that would freeze credit card interest rates on existing credit card balances until the law takes effect.

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According to the Federal Reserve, the average credit card interest rate in the third quarter of 2009 is 13.71 percent. Credit card interest rates have been steadily climbing since the third quarter of 2008 when it stood at 11.94 percent. The fourth quarter of 2008 saw average rates rise to 12.03 percent. The first quarter of 2009 rates were at 12.97 percent and in the second quarter of 2009 rates rose to 13.31 percent.

Banks and credit card issuers have also been raising credit card fees and lowering credit card limits to better manage their risk. They are paying for their lax lending standards in the recent past.

The Federal Reserve reported that 9.55 percent of credit card loans have been written off by banks as bad debt, meaning they don’t expect to recover that money. The charge off rate for all banks in the first quarter of 2006 was only 3.14 percent. During the last recession, the high point for charge off rate was only 7.85 percent.

Even though credit card interest rates and credit card fees are headed higher, the total  outstanding credit card debt has been declining for the past four quarters. Revolving credit decreased 10 percent in the third quarter of 2009. Total revolving credit in the third quarter is $889 billion, down from $975 billion in the third quarter of 2008.