Consumers facing a retroactive increase in the interest rate on their credit card can lock in the existing, lower rate for up to five years after a new consumer protection law takes effect Thursday.
The new protection, part of the Credit CARD Act enacted by Congress three months ago, comes at a time when credit card issuers have been aggressively raising interest rates.
The median interest rate, based on rates charged by the nation's top 400 credit card issuers, increased from 9.99 percent in December to 11.99 percent in July, even though the interest rate the Federal Reserve charges banks dropped over the same period, according to Elemi Constantine of the Pew Safe Credit Cards Project.
Starting Thursday, card issuers must give consumers at least 45 days' notice of a pending rate increase.
"That gives consumers a little time to shop around for another card," Constantine said. "Should consumers choose to move to another card or just to close their current account, they can choose to reject the rate increase and effectively convert any existing balance to a closed-end loan that they can pay off at the current rate for up to five years."
Most of the new consumer protections, including a ban on retroactive interest rate increases, won't take effect until Feb. 22. And consumer protections affecting gift cards won't take effect until August 2010.