August 22 Credit Card Rules to Protect Consumers

With concern growing over the high cost of penalties credit card holders have been required to pay, changes were recently implemented and mandated. The new rules are now in place whereby people actually have protection against late payment, over spending limit, and other credit card fees deemed 'unreasonable."

With these new rules, credit card companies are no longer permitted to charge anything over $25 when payments are received late. The only exception would be in extreme circumstances but even then, these companies cannot charge account-holders for not using the cards to make purchases. Additionally, any rate increases imposed on account-holders starting on January 1, 2009 would have to be reconsidered under the approved regulations established by the Federal Reserve Bank.

With this federal legislation now passed, credit card companies must adhere to new restrictions pertaining to interest rates and various fees on credit cards. Although a number of changes have been seen over the years specific to credit cards and usage, this new change is without doubt the most aggressive and comprehensive in history for the credit card industry.

In addition to credit card companies being required to make changes in response to this new law known as the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, or CARD, the banking industry has also implemented necessary changes. As a whole, the banking industry has taken quick action to ensure every aspect of this law has been put in place.

Although banks and credit card companies have executed the requirements of the new Federal law, before the full scope can be realized it will take some time. However, changes will eventually become evident as consumers begin making different choices and gain more control over spending but also accountability and responsibility. All aspects of this new law are favorable for credit cards account-holders but the one that seems to be getting the most consumer interest is the potential for lower interest rates.

For banks, if the reasons that higher interest rates were imposed over the course of the past 20 months no longer exist, rate reductions would be mandatory. In addition, changes in credit cards' interest rate will be the responsibility of regulators, making sure any reductions are fully enforced according to the Federal law. With this, it would be impossible for banks to slip through the cracks, meaning the changes would be required but also confirmed across the board for all United States banks.

From a consumer's standpoint, the elimination of penalties being restricted to $25 or less would be noticed immediately. Keep in mind that although the United States Congress put the Federal Government in charge regarding the best way to implement, execute, and enforce this new law, the reduction of penalty fees imposed by credit card companies was a primary provision of the law itself.

With this responsibility, the Federal Government determined that in some situations, penalty fees could be higher than $25. For instance, in the case where an account-holder had made late payments repeatedly, or if the issuer of the card was applying a higher penalty fee in a reasonable manner to help offset costs it has to pay for associated with a repeat offender's violations, the higher penalty fee would be approved by the Federal Government.

The way this new law is setup, any imposed penalty fees cannot exceed a dollar amount incurred by the violation of the cardholder prompting the application of the fee. As a primary example, if a cardholder were late making a minimum allowed payment of $20, the amount of the fee imposed could not be more than $20. On the other hand, for over the limit spending, if a cardholder were to go over this limit by $10, the penalty could not be more than $10.

With this, imposing several penalty fees for a violation on a single payment would no longer be allowed. This past June, new provisions under this law were announced, which support the rules implemented previously under the 2009 credit card law already being enforced. As of February 2010, card issuers were no longer permitted to increase interest rates on existing balances but only in situations where the cardholder was making all payments on time according to the agreement. In addition to this, cardholders would have to be notified a minimum of 45 days prior to interest being increased and fees being changed.

Another responsibility of the Federal government was to determine the most efficient way for penalty fees to be established following proportional and reasonable guidelines specific to the cardholder's violation. Because the cap on fees is more than suggestions made by the Federal Government, consumers definitely come out ahead. For instance, the limit of $25 for fees would prove to be a significant financial savings to cardholders who were being penalized $39 or more previously.

Keep in mind that if a cardholder were late on a payment or spent more than the allowed credit limit within a six-month period, card issuers would have the option of increasing a second penalty for that person from $25 to $35. In fact, in some circumstances, the fee imposed could be more than $35 if the card issuer could justify the increased amount to regulators of the Federal Government.

Without doubt, the new laws associated with credit card penalty fees are being heavily enforced but another area that has not yet been resolved has to do with increased interest rates being imposed whenever the terms of a credit card agreement have been violated by the cardholder. In other words, while the amount charged for a penalty fee would be adjusted according to the new rules, the cardholder could still be charged a permanent interest rate increase for any purchases in the future.

Although the new rules under the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, or CARD is a huge improvement from previous rules, which will save consumers money and make it possible for saved finances to be used for paying off debt, a number of financial institutions still have concern. One member of the Financial Services Roundtable, which consists of a group of lobbyists, a warning went out that putting a cap on the penalty fee amount would have a negative impact on the industry by limiting risk offset that some credit card account-holders would not pay on bills.

As this individual stated, restrictions on the rules established by the Federal government would make it more difficult for the credit card industry overall to set fair and uniform prices for this type of credit card risk. He went on to say that the net amount would actually decrease available credit. Today, some controversy still surrounds the changes made, which will need to be ironed out but it is clear to see that for the consumer, these changes are favorable.