Bank of America Corp. plans to begin charging credit card penalty rates again after it eliminated them following the CARD Act.
The Charlotte, N.C., bank started notifying borrowers this month that it may raise their interest rate for new credit card purchases to as high as 29.99%, Betty Reiss, a spokeswoman, said Wednesday.
A customer could trigger the penalty rate by missing a monthly payment, though Reiss said B of A will look at such changes on case-by-case basis.
"A late payment won't automatically trigger a rate increase," Reiss said. "If somebody goes late, we'll review the account and if in combination with other risk factors it's appropriate, we'll raise the rate on" new purchases.
Reuters first reported the change Tuesday. The adjustment will take effect on June 25.
If it raises a customer's rate, it will provide them with at least 45 days notice, which is a requirement under provisions of the Credit Card Accountability, Responsibility and Disclosure Act that took effect in February 2010.
Penalty or default interest rates were a standard part of most issuers' credit card agreements before the CARD Act took effect. While they are still common today, some issuers, including B of A and Wells Fargo & Co., phased them out after the regulations took effect. Some issuers "just stopped using the delinquency [annual percentage rate] because the effectiveness of them had waned," said John Grund, a partner at the payments consulting firm First Annapolis Consulting in Linthicum, Md.
Under the CARD Act, issuers are required to provide 45 days notice for raising interest rates. In addition, issuers cannot apply rate increases to existing balances unless a borrower is 60 days late on payments. Issuers are also obligated to review accounts that have incurred rate increases to determine if they should be reverted back to the previous rate.
Reiss said B of A does not charge penalty rates to existing balances and has no plans to do so.
