Credit card rates rise in 1st half of '09

NEW YORK (CNNMoney.com) -- The nation's banks raised credit card rates and increased their profit from lending to consumers in the first half of 2009, according to a consumer advocacy group.

The Pew Safe Credit Cards Project said Monday the median lowest advertised credit card rate rose to 11.99% in July from 9.99% in December. At the same time, the group said, the profit banks made on credit card debt rose 46%.

The group, which says on its Web site that it seeks to "protect customers from unfair credit card practices," said its figures are based on a survey of nearly 400 credit card issuers. The full results of the survey are scheduled to be published next month.

The study said the rate banks charge on credit card loans on top of what it costs to borrow from the Federal Reserve rose to 8.74% in July from 5.99% in December. That came as banks' borrowing costs were cut in the wake of the Fed slashing its benchmark interest rate to a range near zero percent.

A spokesman for the financial services industry said the ongoing financial crisis made raising money difficult and expensive, with the costs passed on to consumers in the form of higher rates.

"A key thing to recognize is that about half of the funding for credit card loans comes from securitization" through private investors, said Peter Garuccio, a spokesman for the American Bankers Association. "We all know what happened in the secondary (credit) market last fall, and it's still very dry, which has made it more difficult and more expensive to fund credit cards."

Credit card law: The initial findings from the study came days before the first provisions of the Obama administration's credit card reform act go into effect.

Beginning Thursday, cardholders will be able to reject rate increases imposed by banks and will have up to five years to pay off their credit card balance at the current rate.

The new provisions also prevent credit card issuers from more than doubling a borrowers' minimum payment and raised the minimum number of days that banks need to give before making significant changes to a contract to 45 from 30.

The act, which President Obama signed into law in May, will not be fully implemented until February.

Eleni Constantine, director of Pew's financial security portfolio. said the final version of the act will ban retroactive rate increases and prohibit "hair trigger" penalties for errors such as late payments.