WalletHub’s Ideal Credit Card Interest Rate Repricing Disclosure
The personal finance industry has been marked by widespread regulatory changes in recent years, as politicians and industry watchdogs have moved to curtail many of the unscrupulous banking practices that combined to harm consumers and help cause the Great Recession. Throughout this process, particular emphasis has been placed on improving transparency in the industry so as to ensure that consumers know exactly what they’re getting into when applying for financial products. We’ve therefore seen a number of different organizations – from federal regulatory bodies to research firms – offer model disclosures for credit cards, prepaid cards, checking accounts, and more in order to give banks a uniform example that presents consumers with the requisite information in a clear and concise manner.
Clear, informational disclosures are especially important when it comes to credit card interest rate repricing. Prior to the Great Recession and the CARD Act’s passage, it was common for credit card companies to entice new customers with attractive interest rate offers only to abruptly raise their rates for little or no reason once accounts were open. According to the Center for Responsible Lending, 11% of credit card balances were inflated by Penalty APRs in 2008, and while most people didn’t even know their rates had changed, the practice cost the average household $2,000. The CARD Act addressed this issue specifically with a number of rule changes, and credit card disclosures should therefore convey the dynamics of this new environment. More specifically, a credit card disclosure should answer the following questions:
- What can cause my interest rate to change?
- If my interest rate changes, will that affect my existing balance?
- If my interest rate increases, how can I get back my regular rate?
In order to aid in the development of a disclosure that will provide all of this crucial information to consumers, WalletHub developed the following model disclosure.
|Interest Rates and Interest Charges|
|The Penalty APR may apply under two circumstances||At any point in time that you become 60 days delinquent, it may apply to both your existing balance and new transactions|
|After the first 12 months of account opening, it can apply to any transaction made more than 14 days after we provide notice (i.e. new transactions)|
|How Long Will the Penalty APR Apply?||A Penalty APR may apply to new transactions indefinitely. A Penalty APR applied to your existing balance (i.e., transactions that occurred prior to or within 14 days after we provided notice about the increase) will apply indefinitely unless you make the next six consecutive minimum payments when due.|
*APRs will also vary with the market based on the Prime Rate, when an introductory term concludes, or if you enter into a workout agreement.
Please provide your thoughts on this disclosure in the comments below. It is our hope that we can perfect the way credit card companies disclose their interest rate repricing policies and then encourage federal regulators to adopt the resulting Ideal Credit Card Disclosure in order to promote consumer understanding of the financial products.
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