On August 22nd, the Federal Reserve will roll out another round of new credit card rules. Unlike the main CARD Act provisions enacted on February 22nd, the August 22nd rules are far from sweeping. The new rules mainly address credit card fees assessed for penalties and thus won't have a huge impact on the vast majority of Americans who pay their credit card bills on time. An additional rule requiring credit card companies to re- evaluate rate increases may provide the most benefit to consumers, although the manner in which it will be enforced will ultimately determine if the rule helps consumers.
Below is a rundown of the new credit card rules:
1.) Penalty Fee Rules: At present, credit card late fees are extremely high. Most companies levy late fees based on a consumer's credit card balance. Nearly all major credit card companies charge in excess of $30 for balances over $500, with many charging $39 late fees.
Under the new credit card rules, the maximum late fee cannot exceed $25 unless you have been late in the past six months or your credit card company can prove that your late payment cost them more than $25. The maximum late fee for people who have make more than one late payment in a 6 month period is $35.
Additionally, the maximum late fee can no longer exceed your minimum payment due. Thus, if your minimum payment is $10, the maximum late fee can only be $10.
Because late fees cannot exceed minimum payments due, you can expect most credit card companies to raise the minimum payment amount to $25 in the near future. This will allow them to capture more late fee income and I'd be tremendously surprised if this did not occur.
Just as late fees cannot exceed minimum payments due, over-the-limit-fees can also no longer exceed the amount of the transaction. Thus, going $10 over your credit limit can only result in a $10 fee, as opposed to $25 or more currently being charged by many companies.
Another change protects consumers from multiple fees that might be incurred by a person whose failure to pay on time triggers a late fee that causes them to go over their credit limit. Under the new credit card rules, you can only be charged a single fee for an event of transaction that violates your cardholder agreement.
Lastly, inactivity fees are now banned. These fees, which are assessed on consumers who do not use their credit cards, are not commonly charged by the major credit card companies and thus will likely impact a limited number of consumers.
2.) Interest Rate Rules: The new interest rate rules should keep lawyers busy, as they are unclear at best and easily open to interpretation. The first of the new rules requires credit card companies to tell you why they are increasing your interest rate in the event they do so. Ideally, this will likely result in letters stating, "Due to a decline in your credit score or due to a previous late payment we are increasing your interest rate." This type of disclosure would be helpful. However, it is very likely many letter will simply state, "Due to economic conditions or due to changes in your credit profile your rate will be increased." This would provide little benefit to consumers.
The major new credit card rule for interest rates forces credit card companies to re-evaluate interest rate increases every six months. Whether or not this will be a big positive for consumers will depend on how credit card companies go about this process. However, I highly doubt this rule will result in substantial rate decreases, as credit card companies can pull a litany of reasons out of their hats to justify high interest rates.
Ultimately, the new credit card rules for August 22nd will probably hurt banks and consumers equally. With substantial decreases in penalty fee income, banks may look to add annual fees, charge higher interest rates, or reduce credit card rewards programs to make up for the lost revenues.
Of course, some consumers may benefit from decreases in certain credit card fees. However, the consumers who stand to benefit the most from these fee limitations may find that credit card companies are no longer interested in lending to them.
Related Posts
- How to Change Credit Card Due Dates Most credit card companies will allow you to change the date your payment is due. You can make your due date correspond with how you receive your income, or spread out your due dates throughout the month instead of having everything due at the same time. The strategy you use...
- Your Credit Impacts Your Financial Goals Financial stability is a common goal shared by most Americans. Reaching this and other financial goals is possible if you are successful in overcoming obstacles which can side-line your efforts. Unfortunately, the reality for many consumers is a life long struggle with money management and financial set-backs which could put...
- The Ultra-Premium J.P. Morgan Select Credit Card Chase is one of the largest issuer of reward credit cards and they offer a wide variety of cash back and co-branded cards that grant points or miles. Furthermore, Chase operates an industry leading rewards program aptly titled Ultimate Rewards. Although their most well known cards that offer Ultimate Rewards...
- Credit Card Review: The Capital One VentureOne Rewards Card Within the community of travelers who are constantly seeking the highest rate of return from their reward credit cards, Capital One made big news when they held a “Match Your Miles” promotion during which they gave away a billion frequent flyer miles. The standard Venture rewards card, which is heavily...
