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Lower interest rates? Not in the (credit) cards

| March 6, 2010 1:00 PM

NEW YORK (AP) - It sounds like a victory for credit card users - a rule that would require banks to review any interest rate hikes every six months, and lower rates when appropriate.

Yet loopholes in the Federal Reserve's latest proposal could let banks avoid rolling back rates in most cases.

To start, the proposal issued Wednesday wouldn't require banks to use the same factors for raising a rate when reviewing whether to lower it.

That means a bank could cite a new set of criteria when evaluating rate hikes every six months. And the measures banks use could be very broadly defined. For example, banks often cite deteriorating market conditions when hiking interest rates. Yet market conditions could be based on unemployment rates, consumer confidence, or any number of yardsticks.

"The Fed left a lot of leeway for issuers to determine on their own what to do," said Nick Bourke, manager of the Safe Credit Cards Project at The Pew Charitable Trusts.

Even if banks determine that a lower rate is warranted, the Fed's proposal doesn't call for a reduction of a specific amount. So banks wouldn't need to return the interest rate to its original level.

Instead, banks could opt for a minimal reduction, said Bill Hardekopf, CEO of LowCards.com.

The latest proposal by the Fed is part of the broader credit card reforms that went into effect last month. After a public comment period of one month, if approved, the rules outlined in the proposal would take effect Aug. 22.

To address the tougher terms banks rushed to cram in before they faced restrictions, the proposal would also apply retroactively to Jan. 1, 2009. That means banks would need to review the spate of rate hikes they implemented in the past year.