New Credit Card Rules Tackle Fees, Rates

By Monday, the credit card world will change once again.

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Your credit card is about to become more consumer-friendly. The Credit Card Accountability Responsibility and Disclosure Act of 2009 authorized the Federal Reserve to implement new rules regulating the credit card industry. Many of these rules took effect on February 22, 2010, including 45 days notice for interest rate hikes, restrictions on getting a credit card under age 21, and the elimination of double cycle billing.

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Now the final batch of regulations goes into affect on August 22, 2010. Generally, these new rules protect consumers from unreasonable penalty fees and interest rates. These rules will be particularly important if you are struggling with credit card debt. Here’s a brief summary of what you can expect from the new regulations.

Interest Rates

Particularly for those who carry a balance on their cards from month to month, having low interest credit cards can save a lot of money. Unfortunately, many credit cards have gone in the opposite direction, raising rates substantially on many consumers. The new rules will help in several respects.

1. If a credit card company increases the annual percentage rate of your card, they must tell you why. While this part of the rule won’t prevent a rate increase, at least you’ll understand the reason (such as a falling credit score), and have an opportunity to address the issue.

2. If your credit card company does increase your interest rate, they must reevaluate that rate increase every six months. If the reason for the increase has been resolved, they must reduce your interest rate within 45 days of completing the reevaluation. This rule could be particularly helpful to those who have seen their credit card interest rates skyrocket for no discernable reason.

Penalty Fees

Credit card companies have become well known for fees. From late payment fees to over-the-limit fees, credit card fees have become a real nuisance. While the new regulations won’t eliminate these fees, they will take a big bite out of them.

1. Generally, credit card companies will no longer be able to charge you a penalty fee of more than $25. There are some limited exceptions to this rule. For example, if the card company can prove that they incurred costs in excess of $25 as a result of a late payment, the penalty could exceed $25. And if you were late with a payment in the last six months and pay your bill late again, the penalty can go as high as $35.

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2. You can also not be charged a late payment penalty that is greater than the amount of your minimum payment. This avoids the practice of card companies slapping you with a $39 late payment penalty because your were a few days late on a $15 minimum payment.

3. Credit card companies can no longer charge a fee if you don’t use the card. Called an inactivity fee, some credit cards actually hit you with a fee if you didn’t use the card enough. The new rules eliminate this practice.

4. Finally, credit card issuers cannot charge you more than one penalty fee for each transaction or event that gives rise to the fee. For example, if you were late with a payment and the penalty fee caused your account to exceed its credit limit, card companies would hit you with an over-the-limit fee in addition to the late penalty fee. The new regulations put an end to this double-penalty practice.

Time will tell just how well these regulations work at protecting consumers. In some cases, these regulations cause companies to find new ways to raise revenue, such as increasing annual fees or reducing other benefits. But at least for now, consumers will get some relief from credit card fees and rising rates.

DR is the founder of the popular personal finance blog, the Dough Roller and credit card review site, Credit Card Offers IQ.