Retroactive Interest Rate Increase

AAA

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.

INVESTOPEDIA EXPLAINS '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. Nonrevolver

    A credit card holder who pays his or her balance in full each ...
  2. Credit Card

    A card issued by a financial company giving the holder an option ...
  3. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), ...
  4. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
  5. Behavioral Modeling

    Using available and relevant consumer and business spending data ...
  6. Business Guarantee

    A credit card agreement in which any debts accrued on a corporate ...
RELATED FAQS
  1. How do prepaid debit cards work?

    Prepaid debit cards work almost like a combination of a credit card and a checking account. Prepaid debit cards are issued ... Read Full Answer >>
  2. How do I get a higher limit on my credit cards?

    Before applying for a higher credit limit, it is important to demonstrate responsibility. One way to do this is by making ... Read Full Answer >>
  3. Where are secured credit cards accepted?

    Secured credit cards can be used just like regular credit cards wherever credit cards are accepted. Secured credit cards ... Read Full Answer >>
  4. Do prepaid Credit Cards have monthly fees?

    While prepaid credit cards differ in their fee structures, some come with fees to purchase the card, activate the card, add ... Read Full Answer >>
  5. How have low interest rates affected lease rates in the automotive sector?

    Low interest rates have contributed substantially to increased lease rates in the automotive sector. In recent years, the ... Read Full Answer >>
  6. How often is interest compounded?

    Interest can be compounded on any given frequency schedule. Common interest compounding time frames are daily, monthly, semi-annually ... Read Full Answer >>
Related Articles
  1. Insurance

    Identity Theft: How To Avoid It

    Don't be a victim of this disturbing crime. Get insight into how perpetrators commit this form of fraud.
  2. Credit & Loans

    Take Control Of Your Credit Cards

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

    Understanding Credit Card Interest

    Paying these rates can impact your disposable income and your investment returns.
  4. Options & Futures

    Top 7 Most Common Financial Mistakes

    Choose fortune over disaster by avoiding these money traps.
  5. Forex Fundamentals

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  6. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.
  7. Credit & Loans

    How Is Cashback Profitable For Credit Card Companies?

    Cashback rewards are not as beneficial to the consumer as they might initially seem.
  8. Savings

    Why Do Credit Cards Expire?

    Credit cards expire for more reasons than you could imagine – including, so you don't forget you have the card.
  9. Credit & Loans

    Meet The Company Behind Your FICO Score

    There are other credit scores that evaluate lending risk, but FICO is still the choice of most U.S. lenders.
  10. Stock Analysis

    How MasterCard Likely Earned a Spot in Your Wallet

    An in depth look at MasterCard and its future prospects as an investment.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center