Bank of America Corp. on Tuesday pledged not to hike credit card interest rates or fees before a new law intended to reform industry practices takes effect in February.
Since most Bank of America customers have variable rate cards, however, they could still see their interest rates go up. The interest on variable-rate cards is tied to the rise and fall of the prime rate.
The North Carolina-based bank, along with Chase, in August switched most fixed-rate cards to variable rates to manage costs in light of the sweeping new reforms to the credit card industry. Discover Financial Services moved some of its cardholders from fixed to variable rates in June.
Those previous moves to variable rate cards somewhat blunts Bank of America's announcement Tuesday that it will not implement rate hikes based on a customer's risk or market conditions. The company also said it will continue to re-price customers who are late on two or more payments in a one-year period.
Still, the timing of the announcement is no coincidence.
Lawmakers had recently introduced legislation to move up the effective date of new credit card reforms by two months to Dec. 1. The House Financial Services Committee was set to hold a hearing on the legislation Thursday.
That earlier effective date was proposed after consumers across the country started getting notices of higher interest rates and lower credit limits after the credit card law was signed by President Barack Obama in May. The law, which goes into effect in February, will limit banks' ability to raise rates and fees, and requires them to give greater disclosure on the costs of borrowing.
Bank of America first declared its pledge not to change terms between now and February in a letter dated Monday to Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee.
In a release, Sen. Chris Dodd, D-Conn., urged other banks to follow Bank of America's lead and pledge not to raise rates any further until the law takes effect.
"This Congress has made it clear that abusive credit card practices are no longer acceptable," Dodd said.
It's unclear how many banks actually will join BofA in freezing rates. A Chase representative said Tuesday it "intends to be in compliance" with the law when it becomes effective. Wells Fargo, meanwhile, is in the process of notifying customers that interest rates on current credit card accounts will rise up to 3 percent, effective Nov. 30, although overlimit fees will be eliminated.
Kevin Rhein, group executive vice president for Wells Fargo, told The Associated Press the bank had been delaying its decision on interest rates in the hope that the economic environment would improve enough to make higher rates unnecessary. However, given increased business costs and the forecast for a continued rise in unemployment, Wells Fargo "needs to make this change, if we are going to try to offer credit to the greatest number of customers," Rhein said.
Wells Fargo said it is endeavoring to be as transparent as possible about the rate hike, notifying customers with standalone letters, not just in their statements' fine print. Customers may choose to close their accounts and pay off their existing balances at their current rate.
In an e-mailed statement, Bank of America spokeswoman Betty Riess said the decision not to raise rates "is consistent with other consumer-oriented policy changes we have made recently."
Riess was referring to the bank's decision earlier this month to stop automatically enrolling customers in overdraft protection, a practice that has come under widespread criticism in the past year. Instead, customers who want overdraft protection for their debit cards will need to opt into the program.