Nicholas Carroll
Nov. 29, 2009

In the last two months there has been a dramatic change in the fine-print stuffers that come with monthly credit card statements (or occasionally mailed separately). They used to say, in translation, "The deal is not the deal. At some point we may decide to put the screws to you."

Now 80% of the ones I've seen say "We are putting the screws to you" – the rates are being jacked up. Of the ones passing across my desk, Chase is towards the "low" end at 19.24% interest right now (in a prime rate plus 15.99% formula), with Citibank the most brazen at 29.99%. (I haven't seen anything yet from HSBC, which also operates as Orchard Bank.)

All of the notices I've seen offer the option of freezing the account at the current rate, in which case the credit card is deactivated and the account just chugs away sending monthly bills until it's paid off, at which point the bank closes it. Allowing that I haven't had time to read every piece of paperwork surrounding the new Federal Credit Card Accountability, Responsibility and Disclosure Act, it looks like Section 108 is the part that is prompting the banks to jack up rates before February 22.

Options for people running a balance.
1. Don't respond and let the interest rate rise. This works if you intend to pay the card down very soon, and you want an "old" card active to boost your credit rating. (There may be annual fee sticker shock, though.)
2. Respond and have the account frozen at the current interest rate.
3. Max out the credit card (if you need to keep up cash reserves), and then do #2.

And then there is:
4. Default. See this writing on strategic defaulting.