Discover To Convert Fixed Rate Credit Cards To Variable Interest Rate
Aug 16th, 2008 | By Rob | Category: Credit Cards, interest rate
Credit card companies have pretty much always felt free to adjust the interest rate on their fixed rate credit cards. That is, until last year when Citibank decided that the fixed interest rate on its credit cards would no longer be increased at any time for any reason. Citigroup has since rethought that policy, and now it turns out that Discover has also had its fixed rate credit card policy under consideration.
An NBC affiliate reported that Discover Card has informed holders of its fixed rate credit cards that it is converting them to variable rate credit cards. The conversion will take place on October 1, 2008. I haven’t determined yet how many Discover Card holders are receiving the notice of the change in policy terms.
The report is concerned that variable rates will increase the amount of interest that credit card holders pay and could kick start credit problems among some who cannot convert to another fixed credit card and are forced to accept an increase in the interest rate on their credit card.
I am going to hold off on judging the effect of the conversion from a fixed rate to a variable rate by Discover. Since fixed rate credit cards have recently operated almost as variable interest rate cards, it’s not clear what will be the short term impact on the interest rate of card holders. The concern with variable interest rates is that an affordable debt obligation could become unaffordable as interest rates increase. But as long as the Federal Reserve continues to keep interest rates low, consumers might even benefit from a floating rate.
The conversion by Discover also ends the doublespeak on interest rates that has surrounded changes in interest rates on fixed rate credit cards. That, in and of itself, is a policy change to be celebrated.
