Posted by William Charles on April 10, 2015
Credit Cards

Published on April 10th, 2015 | by William Charles

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What Changes Can/Can’t Credit Card Issuers Make In The First Year Of Approving A Card?

Whenever you apply for a credit card there is an expectation that they credit card will maintain the same benefits, rates and fees for at least the foreseeable future. But is this really a realistic expectation? Let’s have a look at what changes credit card issuers are able to legally make to your cardholder agreement in the first year of having the card and what changes are illegal.

Before we get into this, it’s important to note that I am not a lawyer and that this post does not constitute proper legal advice. If you need legal advice, please seek the help of a registered lawyer.

Legal

  • Change the terms of the introductory APR. If you apply for a credit card that advertises an introductory APR of 0% for 15 months, there is no guarantee that you will get this full term. Credit card issuers are allowed to vary this based on your credit worthiness.
  • Offer a smaller sign up bonus. Credit card issuers are a bit sneakier about this one, but if you sign up for a sign up bonus of 50,000 miles they can offer you a smaller sign up bonus. How they usually do this is by having multiple versions of the same card. For example, they might have a Visa Signature version, Platinum & Preferred accounts. The fine print of the offer will say something along the lines of “We reserve the right to approve you for a lesser version of this card which has a sign up bonus of 5,000 miles if you’re not eligible for the Signature card). Bank of America in particular are known for doing this.
  • Benefit changes. Credit card issuers are allowed to change the benefits that a credit card offers, even if you only recently applied for this credit card. Under the CARD act credit card issuers are required to provide written notice 45 days before any significant changes are made. It’s not entirely clear if a benefit change would be considered a significant change under the amendment made to the TIL act with the CARD act.

Illegal

  • Interest rates cannot be increased. There are a few notable exceptions to this, if your credit card interest rate is tied to an index (and most of them are) and that index rate also increases (e.g your card interest rate might be 5% + prime rate. If the prime rate increases by 2% then your interest rate can also be increased by 2%). If you’re on an introductory rate, the rate can also be increased after this period has finished. If you make a late payment or your on a payment plan and fail to make payment your interest rate can also be increased. These new rates also only apply to new purchases and not existing debt on the card. If rates are increased, the card issuer has to notify cardholders 45 days before these changes take effect.
  • Annual fee cannot be increased in your first year. If you sign up for a credit card that has an annual fee of $50, the credit card issuer cannot increase that fee to $100 and force you to pay an additional $50 to keep the card. They can of course charge this higher fee in year two on wards though as long as they notify you about the change 45 days before it happens.

Final Thoughts

One thing that I find particularly troubling is the practice of credit card issuers advertising a benefit that they have planned to discontinue, especially when they’ve already notified existing cardholders of this discontinuation. The most notable example of this is U.S Bank & Club Carlson advertising the “Bonus Award Night when you redeem Points for 2 or more consecutive Award Nights” benefit still, even though this benefit will be discontinued on June 1st, 2015. Presumably they’ll need to stop advertising this shortly so that they can give new cardholders 45 days notice that this benefit will be discontinued.

To me that seems like extremely deceptive advertising, when they could easily add that the benefit will be discontinued on June 1st on their marketing materials. Citi on the other hand have provided potential new applicants with this type of information. For example, their Citi Premier card is having changes made and the current application page reads as follows:

Through 4/18/2015, earn 3X ThankYou Points on Dining Out and Entertainment, and 2X ThankYou Points on Airfare, Hotels and Travel Agencies.2

Starting 4/19/2015, earn 3X ThankYou Points on Travel including Gas, and 2X ThankYou Points on Dining Out and Entertainment.

Personally this seems like a much more honest way of promoting a credit card when you know there will be a significant change made.



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