The new credit card rules started working on 22nd August, 2010 under the Credit Card Act of 2009. The other major alterations were implemented in February and these last changes promised to confine the penalty fees on credit card.
But these new changes are not beneficial for everyone. Nessa Feddis, the vice president and senior counsel for regulatory compliance at the American Bankers Association said, “”These provisions for this August will primarily help those who find it challenging to manage their credit card, as these provisions really relate to late payments and interest rate increases, which are often based on a deterioration in their credit history.”
New Safe Protection Cap on Fees
According to the Credit Card Act the penalty fees should be “reasonable and proportional to the violation of the account terms.”
Nick Bourke, the director of the Safe Credit Cards Project for the Pew Health Group said, “The typical late fees and overdraft fee is $39. The Fed’s new rule will probably make most of those fees go down to about $25.”
The basic reason for this is the safe protection amounts by the CARD Act that include: a $25 penalty fee for the first time violation and a $35 fee incase of second violation and/or other violation of the same kind that may occur during the next six billing cycles.
Credit card issuer can charge more fee than that but for this they have to justify a higher fee through a cost analysis. The new safe harbor is seemed to be useful route for the credit card issuers. Bourke said, “The rules that the Fed created for justifying anything more than the $25 safe harbor are kind of complicated. “The issuer has to basically prove to their regulator that their costs are so high that they have to charge more than the $25 safe harbor in order to be compensated for those costs.”
In both cases, credit card issuers are required to enclose the fee upfront and they are restricted to inform the customer about these charges before 45 days of the implementation.
Issuers can’t charge or they have now restricted to charge a penalty fee that is higher than the dollar amount associated with the violation. For instance, if you failed to pay off the minimum payment on time so let suppose $15, then issuers can’t charge you more than $15 as late fee. Likewise, if you go beyond your limit by $5, then your credit card issuer can’t charge you more than $5.
Ban on Inactivity Fees
Credit card issuers can’t charge annual or inactivity fees on you for not using your card. You are free to use your cards only if you want to keep them functioning.
Periodic Review on Rate Increases
The new changes also points out the rate increases that took place before the implementation and signing of the CARD Act in May, 2009. Credit card issuers are required to conduct an analysis on the rate increases in every six months only if they were deployed on Jan 1, 2009 or after it. Issuers are required to reduce the rates within 45 days after the evaluation.
If your rates were increased in the year gone, then don’t expect to get your rate revert back to their previous level. Gene Truono, the managing director of BDO Consulting in New York said, “There’s no specific amount of reduction in rate that’s required.”
To review rate increase, credit card issuers can either look at the factors, which they considered on the time of rate increased occurred or the other factors that are currently used to determine the APR receives by a new customer. The issuers are required to consider the factors that are currently used for new customers for the first two rate evaluations in the case of the rate increased between Jan 1, 2009, and Feb 21, 2010. Issuers are required to consider these factors unless the rate increase was based on the consumer driven factors, for instance reduce in credit risk.
The review process by the CARD Act is still not transparent to consumers. According to Feddis, issuers are not restricted to send notice to consumers if their rate isn’t reduced as a result of the review.
