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How the 2009 Credit CARD Act limits interest rate increases

Kentucky residents may be aware that the 2009 Credit CARD Act placed restrictions on credit card interest rate increases. Issuers are still allowed to increase rates in certain situations, but they must notify consumers in writing 45 days before the new rate goes into effect. The law also allows consumers to decline the new interest rate and pay off their outstanding balance.

Interest rates applied to credit card debt may be increased when consumers miss two consecutive payments, but issuers must return the rate to its previous level when customers make six timely payments in a row. The interest rate on a credit card account can also go up when a cardholder's credit score drops significantly or if a period during which a promotional APR has been offered comes to an end.

While consumers may decide to close a credit card account after being notified of an interest rate increase, doing so can have a negative effect on their credit score due to higher debt ratios and a lowered average age on their remaining accounts. However, the new rate will not apply to an existing balance unless the rate increase is a penalty APR, and consumers can avoid the rate increase by using one of their other credit cards.

Those who are facing financial challenges sometimes have difficulty making even the minimum payment required by credit card companies, and a subsequent interest rate increase could make their situation unmanageable. Attorneys with bankruptcy law experience can explain the various debt relief options available to those who are finding themselves in this type of financial distress.

Source: NerdWallet, "If Your Credit Card Interest Rate Takes a Hike, Take Stock", Claire Davidson, March 16, 2015

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