New Credit Card Rules

This Sunday, August 22, will see the implementation by the Federal Reserve of the latest set of rules to arise from the Credit CARD Act of 2009. Many credit card companies have preempted this deadline by introducing the changes in advance, but here are the new rights that you should be enjoying this time next week.

Credit Card Late Fees

At the moment, you may well be charged up to $39 if you’re late making a payment, regardless of the amount you should have sent as a minimum payment. From Sunday, late payment fees are capped at the amount of the minimum payment and cannot exceed $25 no matter how much was due (so if you should have paid $10, then that’s how much you can be charged as a late fee).

There are two exceptions to this:

• If you’ve already paid late on one or more occasions over the previous six months, the fee cap rises to $35, regardless of the minimum payment due.
• If your credit card company can prove that your lateness has cost it more than the cap (something that seems unlikely, but possible), it is entitled to charge you more.

Other Fees on Credit Cards

Two of Sunday’s other new rules also affect fees:

1. Lack of credit card use is no longer penalized because issuers aren’t able to charge inactivity fees. However, this may not prevent a company cancelling your card if you fail to use it often enough.
2. Issuers can no longer charge more than one fee for a single event or transaction that breaches your credit card terms and conditions.

Credit Card Rates

From Sunday, credit card rates can no longer be hiked without explanation. If your issuer does increase your rate, it must tell you why, and re-evaluate the increase after six months. Unless there is a good reason for it not to do so, it should then reduce the rate within 45 days.

Credit Card Regulation–Good or Bad?

The great debate about credit card regulation divides neatly along ideological lines. Some argue that the government is ill-equipped to interfere in private enterprises, and should leave the market to determine which practices are acceptable and which aren’t. Others say that the market for cards is inherently impure because few consumers can make fully informed choices when they select their cards. They contend that some issuers set out deliberately to confuse those making credit card applications, and then go on to pursue predatory lending policies.

Both sides can make compelling points, but one argument that appears not to be valid is that raised by industry lobbyists when legislators were originally considering the bill. Those lobbyists suggested that the new law might undermine companies’ business models, and force them to cut back on credit card rewards programs.

But the New York Times reported July 30 that banks’ profits from credit cards are again rising. And, a couple of weeks ago, this column quoted Andrew Davidson, a Mintel Comperemedia senior vice president, as saying that rewards have not been watered down.

Published 08/16/10 (Modified 01/08/14)