According to a survey released in October 2011 by CreditCards.com the average credit
card interest rate is now close to 15 percent. This is up roughly 1 full percentage point
from the average interest rate on new credit card accounts from the same period in
October 2011. The question is, why are interest rates continuing to increase on new
credit card accounts?
Truly, only those who issue credit cards can answer that question but there is some
evidence that suggests their move is partially being caused by legislation. And, there’s
evidence that suggests that the amount of unsecured debt consumers are taking on is
increasing rapidly. The second means more defaulted dollars will have to be subsidized
by credit card banks. And, that means everyone will have to pay more for their plastic.
The CARD Act and Dodd-Frank have eliminated several highly profitable fees
including over limit fees, overdraft fees and excessive interchange fees on debit cards.
Collectively these restrictions will cost the big banks tens of billions of dollars each year
in fee-based income. The amount is large enough that they’ll want to recoup some or all
of that money. And that means all consumers will feel the fee pinch.
The largest fee we pay is the fee to carry debt, interest. So, it makes sense that banks
would increase that fee as it will go the longest way toward making them whole again.
However, it’s not the only way the banks are trying to juice their customers. A new slew
of debit card monthly fees were announced in September and October 2011 from large
banks like Bank of America, Chase, Wells Fargo, SunTrust and HSBC.
So how can consumers avoid these new fees and rising interest rates? If you don’t
revolve a balance then your interest rate is meaningless. And, if you consider your
banking relationship to be portable, which many people do not, then you can certainly
move your business to one of the many credit unions who are not increasing interest
rates and fee-slapping their customers.
“The Credit Guru”, Longtime FICO Insider & Credit Industry Authority President Of The Ulzheimer Group, LLC
John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of The Ulzheimer Group, the Director of Credit Education at DisputeSuite.com, Credit Expert at CreditSesame.com and the credit blogger for Mint.com. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 150 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.