Legal Commentary

Credit Card Rates At ?Record High?

By Todd Zywicki

Wow, who could have possibly predicted that the Credit CARD Act?s rules that limit non-interest fees and the ability to raise interest rates when a borrower?s risk changes would result in ?record high? interest rates (other than me, of course, when I testified to the Senate Banking Committee in 2009 that the act would result in higher interest rates and other than the sponsor of the law, who has acknowledged that it has resulted in higher interest rates but has decided for the rest of us that higher rates is a good thing)?  Even more amazing, it appears that these restrictions on risk-based pricing has hit poor credit risks even harder than less-risky consumers.

Interest rates are now hovering near record highs, at an average rate of 14.72%. And if your credit is bad enough, you could even end up with a rate as high as 59.9% APR.

That?s because while the CARD Act helped crack down on certain fees and requires more disclosures, it didn?t cap every credit card holder?s worst enemy: interest rates.

Sure, the new rules prevent banks from raising most interest rates retroactively, but there?s no limit on the rates they can charge new customers.

?Rates are going up because card issuers know that once you get a card they can?t raise the rates, so they?re raising rates on the front end to ensure they get the revenue from that interest,? said Beverly Harzog, credit card expert at Credit.com.

I should add that, of course, this is not a ?record high,? because rates were much higher in the 1970s and 1980s before deregulation led to lower rates.  But they do seem to be the highest in recent memory.

Full post as published by The Volokh Conspiracy on January 29, 2011 (boomark / email).