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Consumer Loans - Interest

Can a bank charge any interest rate it wants?

The rate of interest national banks may charge on credit cards and other types of loan accounts is not determined by Federal banking laws and regulations.

The maximum interest rate is set by State law in the State where the bank is headquartered. Moreover, national banks can export the interest rates of that State to any State in which the consumer resides. (For credit card accounts, the applicable State is named in your Account Agreement.)

The bank increased the rate on my variable home equity line of credit (HELOC) without providing any notice. Can it do this?

Yes. The term "variable" refers to the interest rate. It means that the interest rate on your loan is tied to an index or formula that reprices periodically. At the time you contracted for the loan, the bank was required to provide you with a disclosure that explained this variable rate feature.

Since the variable rate feature was disclosed at the inception of the loan, the rate change is not considered a change in terms. Therefore, the bank doesn't have to notify you at least 15 days in advance.

I sent the full balance due to pay off my account, then the bank sent me a bill charging interest. How is this possible?

Even though you paid off your account, there could have been residual interest from previous balances. Residual interest will accrue to an account after the statement date if you have a balance transfer, cash advance balance, or have been carrying a balance from month to month.

From the time your statement cycles until the bank receives your payment, the interest continues to accrue.

Can the bank raise my interest rate because of a change in my debt-to-income ratio?

Depending on the loan product, banks may change the interest rate on already-existing types of loans if they properly disclose the changes to you.

When setting the interest rate for a loan, banks take many factors into account. A common factor is the debt-to-income ratio (often abbreviated DTI), which is the percentage of a consumer's monthly gross income that goes toward paying debts.

Generally, the higher the ratio, the higher the perceived risk. Loans with higher risk are generally priced at a higher interest rate.

Copyright 2007 by Mark McCracken , All Rights Reserved