Credits cards: Moving from fixed rates to variable?
JP Morgan Chase and Bank of America are moving to exchange fixed rates with variable rates on certain credit cards
According to various news reports, the latest shake-up in consumer lending relates to how banks calculate interest on credit card debt, with some major lenders moving from fixed-rate cards to variable rates.
Both JP Morgan Chase and Bank of America are moving to exchange fixed rates with variable rates on certain credit cards, while Discover made a similar decision in March.
The Wall Street Journal reports that nearly all of BoA’s fixed-rate credit cards will be converted into variable rates – and customers will not be able to opt out. Chase cardholders will have the option of closing their accounts to avoid the change.
Bank of America spokesperson Betty Riess said the move toward variable-rate cards was based on recent “legislative and regulatory changes” that have affected how credit card issuers utilize risk-based pricing.
However, Leigh Allen, a financial consultant who used to work for Citigroup, told Bloomberg that the banks “are basically keeping your rate stable while rates are really low, so that they can raise them when rates go back up again.”
Currently, the prime rate – used by banks to calculate variable interest rates – is at the lowest point in more than 50 years, according to figures from the Wall Street Journal.
By moving to variable rates, card issuers will be able to raise interest rates on customers without sending out notifications.
It also means that when the prime rate rises, borrowers could also see the amount of interest they are paying on credit card debt start to climb.
BofA’s Reiss said customers should start seeing variable rates on their August statements, according to Reuters.
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