Monday, December 14, 2009

The mystery of multiple opt outs explained

Sometimes you have to opt out of a rate increase more than once

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the expert

Dear Credit Guy,
I had a major bank credit card, the interest rate was increased but I opted out of the increase with 8.99 percent and my account was closed in 2007. I am continuing to pay off my credit card, but recently I noticed my rate increased from 8.99 to 12.24 percent. When I called about the increase, they said a notification was sent to me about the rate increase and I had not opted out again. So, my rate is increased. Is this legal? I thought it was the law that if you opt out you can pay off your balance with the current rate, but it seems even after you opt out, the rate can continue to increase and you have to do multiple opt outs during the entire pay off process. . -- Mohammed

Answer for the expert

Dear Mohammed,
It is difficult to answer your question regarding the legality of increasing the interest rate on an account where you have previously opted out of a rate increase without reviewing the original cardholder agreement. However, the large bank that issued you the card is likely to have a team of legal representation, so it is very unlikely they would proceed with an illegal action. In most cases, when you opt out of changes to your cardholder agreement, the account is "closed" and you can no longer make purchases with the card. Given that fact, many people would make the assumption that it would not be possible for the card issuer to make changes to a "closed" account.

I asked a consumer attorney, Richard M. Alderman, and his response was, "The account may not be really 'closed,' but is just inactive and no longer allows any future spending. Until it is paid in full it is still 'open.' If that is the case, the card issuer may still propose changes to the terms and the consumer would have to reject them."

Should you have access to your original cardholder agreement, you might want to take a look at it and see if you can determine what happens to your account once you have opted out to proposed changes to your agreement the first time. Even if you can find it, you may not be able to wade through the fine print and legal terminology to come to a definitive conclusion.

My recommendation is that you open and review all correspondence from your card issuer and continue to opt out of any proposed changes to your cardholder agreement. Be sure to send a certified letter stating you are opting out with a return receipt request.

This practice of requiring consumers to opt out multiple times to changes in a cardholder agreement is new. It is likely these actions are a direct result of the fact that the remainder of the provisions of the Credit Card Accountability and Responsibility Disclosure Act of 2009 (Credit CARD Act) go into effect in February 2010. The good news is that the Credit CARD Act will prevent card issuers from these types of actions moving forward. Specifically, your card issuer will no longer be allowed to raise your interest rate due to universal default and can only raise your rate for being 60 days late.

One other important provision of the Credit CARD Act will require card issuers to post their cardholder agreements on their Web sites, thus eliminating the guesswork in what is allowed and what is not. Then you won't have to search for a document years down the road; it will be available at the click of a mouse.

Take care of your credit!