Editorial Policy

Final Credit CARD Act Rules Step into Effect

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By Eva Norlyk Smith, Ph.D.
September 7, 2010

This week the final provisions of the Credit CARD Act of 2009 step into effect, implementing the final new consumer protections for credit card fees, interest rates, and gift cards.

One of the new rules expected to have the highest impact pertains to late fees. Any cardholder who has ever forgotten a payment due date will be relieved to know that going forward, credit card late fees will be somewhat more forgiving.

The new rules stipulate that late-payment fees can no longer exceed the amount due. In other words, cardholders sending in an overdue minimum payment of $15 can’t be charged any more than $15 in penalty fees, not the typical $39 fee. If your monthly payment exceeds $39, there is a $25 limit on the late fee, unless this is the second late payment you made within the last six months; in that case, the fee can be as high as $35. (In some cases, if the card issuer can document that the costs incurred from the late payment is higher than $25, the fee may be higher as well, but card issuers have to disclose this in the terms and conditions up front.)

In addition to clamping down on late fees, the new rules do away with inactivity fees, historically triggered by a lack of regular card usage. Mainly employed to maximize cardholder activity and/or generate increased revenue, these fees saw a recent resurgence with a handful of issuers when the CARD Act tightened the reins on other fees. As of August, 22nd, however, inactivity fees are no longer permitted.

The final CARD Act rules also require card issuers to institute a biannual review of credit card accounts on which they have raised interest for one reason or other. The review is supposed to establish whether the accountholder’s recent payment history and account usage merit lowering the card interest rates back down. The new rules, however, are mum on how much the interest rates have to be lowered following the review, so card issuers are under no obligations to reset rates to previous levels.

Gift cards also get a makeover: no longer will gift card recipients face the risk of sudden expirations and unexpected balance draw-downs via dormancy fees. Going forward, all gift cards will remain valid for at least five years from the date of issue or last funds load. Furthermore, dormancy fees will no longer apply, unless the card has gone unused for a full 12 months. These rules apply to both store-issued and bank-issued gift cards.

With the final consumer protections from the Act in place, experts warn that card issuers are likely to continue to introduce new terms or tighten the existing ones to make up the lost revenues. Some indicate that cardholders may see more annual fees in the future or less appealing terms from the get-go. Already, several card issuers are taking advantage of a loophole in the CARD Act, which exempts 0 APR balance transfer offers and other promotional credit card offers from the restrictions on retroactive interest increases

In short, for credit card users the bottom line remains the same: when it comes to credit card terms and conditions, a little knowledge goes a long way. Although the rules have been made more consumer-friendly, cardholders still need to pay close attention to the terms and conditions of their credit cards to ensure that they get the most benefits from their credit cards, at the lowest possible cost.