Two of the biggest issuers in the nation -- Bank of America and Chase -- say they're switching some fixed-rate cards to variable rates to manage costs in light of the sweeping reforms to the credit card industry. The interest on variable-rate cards is tied to the rise and fall of the prime rate.
The changes will go into effect in August for both banks.
To prepare for a new law that will limit banks' ability to change card terms, lenders have been raising interest rates, tightening credit limits and even closing inactive accounts.
Banks say the switch to variable rates will further limit their risk under the new law, which becomes effective in February.
Chase and Bank of America wouldn't give specifics on how many accounts the change will affect, but they said they will continue to offer some fixed-rate cards. Chase has 159 million credit cards in the U.S. and Canada; Bank of America has 70 million worldwide.
Variable rate cards make up 66 percent of credit cards issued by the nation's largest lenders, according to Bankrate.com.
Fixed-rate cards are generally reserved for the best customers. Despite the name, the terms on these cards could always be changed in the past. That allowed banks to make the gamble of offering customers favorable fixed rates, then raising rates if the customers proved too risky, said Leigh Allen, the CEO of Global Consumer Finance Advisory.
Now that lenders will have limited ability to change card agreement terms, Mr. Allen said they will have to exercise more caution in issuing fixed-rate cards.
In determining which fixed-rate cards to change, Chase spokeswoman Stephanie Jacobson said the company reviewed accounts for potential risk, usage and balance histories.
There's another reason variable-rate cards work in lenders' favor. Banks can set a "floor," meaning the customer's interest rate won't fall below a certain level regardless of how much the prime rate drops. The current prime rate is around 3.25 percent. Ms. Jacobson would not comment on Chase's policy on floors; Bank of America said it doesn't have floors on variable rate cards.