In an effort to make up for the loss of profits expected when the Credit Card Act becomes effective, many credit card lenders are placing borrowers in “pick-a-rate” programs that gives the lenders a lot more flexibly to hit borrowers with interest rates way above their expectations. In a report released by the Center for Responsible Lending, it was discovered that many credit card lenders were using the program to get around the Credit Card Act’s interest rate hike limitations by changing how interest rates are determined.
Under the pick-a-rate program credit card lenders peg the interest rate of borrowers to the prime rate, this usually means the prime rate on the last day of the last billing cycle. But now in many cases that has changed. Many credit card companies have added verbiage that allows the issuer to choose the highest prime rate in a 90 day period. According to the Center for Responsible Lending, the pick-a-rate policy is costing American credit card borrowers $720 million a year and that amount could inflate to $2.5 billion after the new practice spreads to more credit card issuers.
Credit card borrowers using a pick-a-rate plan must carefully check their credit card policies. Find out how your credit card interest rate will be determined. If the credit card company is using a 90 day policy, watch out, you could be hit with a high interest rate. You may want to consider speaking with the credit card company to have the account changed to a fixed rate. If you have a long history with the credit card lender you may have more leverage. However, if they are uncooperative, it may be time to seriously consider finding another credit card issuer.