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CARD Act Regulation Now In Full Effect, Penalty Fees Be Damned

Aug. 22, 2010
Credit Cards
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As of today, the last wave of the Federal Reserve’s credit card rules go into effect, as dictated by last year’s Credit Card Accountability Responsibility and Disclosure Act (or the CARD Act). These rules are meant to spare consumers from certain egregious fees and penalty APRs. While that’s bad news for bank bottom lines, it could mean more money in your pocket. Here are the details of the new rules, as they apply to you:

Limits on Penalty Fees

Before today, late payment fees would often be about $39, regardless of whether you missed a $5 minimum payment or a $1,000 minimum payment.  As of now, they are not allowed to charge you more than $25 unless you’ve missed another payment in the last six months (in which case they can charge you $35), or they can show that they incurred substantially higher costs due to your late payment.  This last part sounds like just the kind of loophole that banks specialize in exploiting, but it’s probably not worth the extra expense of generating “proof” just to ding you with an extra $10.

The new rules also cap the fees they charge, so they cannot be higher than the amount of your offense.  So if you miss a $10 minimum payment, they can’t charge you more than $10.  And if you exceed your credit limit by $15, they can’t charge you more than $15.

Eliminating Certain Fees Altogether

In an effort to recapture some fee revenue once financial regulation first started hurting their revenues, banks got a lot more aggressive over the last year about charging consumers for not using their credit cards.  These inactivity fees are no longer allowed.  Banks are also not allowed to charge you more than one fee for a single offense.  So no double-whammys for missing a single payment.

Explanation and Evaluation of Rate Increases

It used to be common practice for banks to raise your interest rate whenever they pleased and for whatever reason.  In fact, they stated as much in their nearly-illegible terms and conditions.  Going forward, they will have to issue you an explanation whenever they want to raise your interest rate.  Plus they have to re-evaluate those rate increases every six months to verify that their reason for raising your rate is still applicable.  If it’s not, they have to lower your rate within 45 days.

This is probably the vaguest of the new rules, since there is no specific language around what reasons banks must have to raise your rate, or under what conditions those reasons will no longer apply.  So it probably won’t be too hard for them to justify that your rate should stay high once they raise it.  Plus the only person enforcing this rule on your own accounts will be you, so if you don’t call and bug your bank every six months, they probably won’t bother to revisit their decision.