DEFINITION of 'Retroactive Interest Rate Increase'

A common practice used in the credit card industry to increase interest rates on purchases made in the past. A retroactive interest rate increase will affect your outstanding balance. This is often viewed as an unfair lending practice because consumers likely purchased the item in the past based on the assumption they were receiving a fixed interest rate.

Because of this perceived unfairness, the Obama administration introduced the Credit Card Accountability, Responsibility and Disclosure Act in 2009, aimed at protecting against arbitrary interest rate increases, misleading terms, excessive fees and other unsavory credit card company practices.

BREAKING DOWN 'Retroactive Interest Rate Increase'

One of the key elements in the Act is the ban on arbitrary interest rate increases, including retroactive rate increases. This means that banks cannot raise rates on your existing outstanding balance unless you have failed to make payments for 60 days or more.

Of course, banks will still be allowed to increase rates if it was agreed to in your contract. For example, an introductory rate can be increased after an agreed-upon amount of time, but that amount of time has to be a minimum of six months, under the new law.

RELATED TERMS
  1. SEC Form 24F-1

    A filing with the Securities and Exchange Commission (SEC) that ...
  2. Universal Default

    A practice whereby a credit card issuer increases a credit card ...
  3. Credit Card Arbitrage

    Borrowing money at a low interest rate from a credit card then ...
  4. Opt Out Right

    A consumer’s authority under the 2009 Credit CARD Act to disagree ...
  5. Credit Card Balance

    The amount of charges, or lack thereof, owed to the credit card ...
  6. Credit Card

    A card issued by a financial company giving the holder an option ...
Related Articles
  1. Personal Finance

    Everything You Need To Know About Credit Card Rates

    Understanding credit card rates will help you choose the right credit card, and avoid any unpleasant surprises.
  2. Personal Finance

    The Fed's Interest Rate Rise & Your Credit Cards

    The U.S. Federal Reserve recently raised the lending rate from 0% to 0.25% – the first time since 2006. How does that affect your credit card payments?
  3. Personal Finance

    Credit Card Debt: America’s Biggest Struggle?

    Dealing with credit card debt is a huge struggle for many American families. Here are some tips to get you started.
  4. Personal Finance

    How Your Credit Card Is Changing

    The Credit Card Accountability, Responsibility and Disclosure Act of 2009 has brought about new rules to help protect you.
  5. Personal Finance

    Cut Credit Card Bills By Negotiating A Lower APR

    Reducing the rate charged on your credit card balance is the first step to getting out of debt.
  6. Personal Finance

    Take Control Of Your Credit Cards

    The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly.
  7. Investing

    Investing In Credit Card Companies

    This investment requires keeping an eye on consumer indexes and the overall health of the economy.
  8. Personal Finance

    7 Factors For Comparing Credit Cards

    It's good to find a credit card that fits your lifestyle, but read the fine print to make sure you're not overpaying for the benefits.
RELATED FAQS
  1. What are some common models that practitioners use in quantitative analysis of equity ...

    Understand which aspects of a credit card agreement make accepting a new credit card offer a good deal or one that should ... Read Answer >>
  2. Can I get a balance transfer if I have bad credit?

    Transferring funds from one credit card to another is often possible with bad credit, but it will likely cost you in interest ... Read Answer >>
Trading Center