Can a credit card retroactively increase rate on teaser rate?

[joshuagraham]

I was reading this article

http://online.wsj.com/article/SB10000872396390444327204577617711628787468.html

in which it seems to say that if someone has a teaser rate, but screws up somehow, that the bank can retroactively increase the rate. Now I am not sure what the author means exactly by this - but this seems to me that the bank can go back and charge the standard rate all the way back and present a new finance charge for the difference. However, perhaps the author meant to say that going forward, and balance that had been at the teaser rate would now be at the standard rate (or even worse, the defaulted rate.), which is not a problem because I've always known that the bank can always rescind the teaser rate if the debtor is in default.

But even so, the author seems to say that if the debtor's credit profile has deteriorated, the bank has the option to do this. I can't believe that a bank has the power to do this so long as the debtor is not in default. Sure, the bank can always reduce the limit, or even cancel the CC for any reason, at any time, but any debt incurred at a teaser rate can only have that teaser rate so long as the debtor is not in default.

Or am I missing something here?

[LadyInTheRed]

It all depends on the terms of the credit card agreement.

Here's the text you are referring to:

But be prepared to pay if you slip up with one of these cards. If you're late with or miss a payment, or your overall credit quality goes down during the introductory period, you will be hit with rates that can be eye-popping—anywhere from 10% to 25%—when applied retroactively to the balance.

Also, if you don't pay off your balance in full within the promotion period, then the entire starting balance—including any amount you have already paid—is subjected to the substantially higher rate that comes in effect at the promotion's end.

I have seen that provision often in retail credit agreements, especially furniture stores. For example, they give you 0% interest for 1 year, but you have to pay off the entire balance within that year. If after the expiration of the year, you still owe $10 of the original $1,000 debt, you have to pay whatever the applicable rate is on the entire $1,000 for the entire year. It sounds like they are saying these terms are showing up on regular credit cards too and that the ability to apply the rate retroactively also applies if you default or your credit rating goes down during the introductory period.

When applying for a credit card and/or taking advantage of an introductory rate, it is important to read all of the fine print to make sure you understand the terms of the card and introductory offer.

[tradinglife]

Yet another reason to minimize or avoid credit card use. Fore every genius who makes money card surfing or accumulating airline points, 10,000 people get burnt It is game designed for card companies to win, not the consumer.

[Logan]

Yet another reason to minimize or avoid credit card use. Fore every genius who makes money card surfing or accumulating airline points, 10,000 people get burnt It is game designed for card companies to win, not the consumer.

You win if you get cashback for your purchases and you pay the credit card off every month.

Logan

[LadyInTheRed]

You win if you get cashback for your purchases and you pay the credit card off every month.

Logan

In which case the warnings in the referenced article about teaser rates and retroctive rate increases are irrelevant.

[SMinGA2]

I have a card from Firestone. Gets me a good rate on an oil change, and they're about the only place open on a Sunday morning which is the only time I can do vehicle maintenance. They offer 6 months deferred financing for $X amount minimum purchase. Such as in January I needed brake pads & also had a lifetime allignment done. With some other odds & ends, was about $400 and qualified. What I like about Firestone (or the company that backs the card) is the statements are very direct. It showed the balance under the promotion, a final due date by which it needed to be paid in full, and also the amount of interest that was piling up. Since the interest was only deferred if paid in full by a certain date, they kept track and I would have owed it if I had not paid the balance off.

[LadyInTheRed]

What I like about Firestone (or the company that backs the card) is the statements are very direct. It showed the balance under the promotion, a final due date by which it needed to be paid in full, and also the amount of interest that was piling up. Since the interest was only deferred if paid in full by a certain date, they kept track and I would have owed it if I had not paid the balance off.

All credit card issuers are now required to disclose that information thanks to the Credit Card Accountability Responsibility and Disclosure Act of 2009

[SMinGA2]

That makes sense...

[HHM]

What this is referring too is "deferred interest".

This type of account is most frequent, and most obvious, with store cards that offer special financing...primary example, Home Depot. The interest rate is not really Zero Percent for 12 Months. The debtor is still charged interest, but the interest is deferred. Now, if the debtor pays off the balance at that point, the interest is written off, but if the debtor "defaults" or does not pay within the prescribed period, the deferred interest gets added to the account.

These provisions exists in other types of credit cards to, you just need to read the fine print. For some, if the balance is not paid within the promotional period, then interest starts accruing at that point; in others, it is deferred interest and if the debtor doesn't pay within the time period, the deferred interest is added (from the debtor's perspective, it seems retro-active).

There is still a trap in the Credit Card Accountability Responsibility and Disclosure Act of 2009, the law, by default, requires credit card issuers to apply payments to the higher interest balances first. So, if you have a card that has both a regular balance and a promotional balance, and only make the minimum payment, that payment is not going to go to the promotional balance until the regular balance is paid...which could lead to the expiration of the promotional period and the adding in of significant deferred interest.

[SMinGA2]

I was aware of this rule. A good rule of thumb, IMO, if you use a deferred/promotional interest deal is to not charge anything on the card (that would fall into a higher rate) while paying off the promotional balance.

There is still a trap in the Credit Card Accountability Responsibility and Disclosure Act of 2009, the law, be default, requires credit card issuers to apply payments to the higher interest balances first. So, if you have a card that has both a regular balance and a promotional balance, and only make the minimum payment, that payment is not going to go to the promotional balance until the regular balance is paid...which could lead to the expiration of the promotional period and the adding in of significant deferred interest.