New Credit CARD Act Rules Limit Fees, Rates
New rules limiting credit card fees and rates went into effect yesterday, August 21, but consumers shouldn't expect any dramatic improvements in their card agreements. Rather, the grand cat-and-mouse game between consumers and their card issuers will ratchet up.
Here's how the new rules look, and how to make your next move.
- The new late fee limit. Issuers will be prohibited from charging more than $25 for a late fee, unless you've been late more than once in a six-month period, or the issuer can prove that late payments cost it more than $25 per issuer per month. Also: issuers won't be able to charge late fees that are higher than the minimum monthly payment. If your minimum payment is $15, they won't be able to charge you any more than $15 for being late. The takeaway for consumers? Expect your monthly minimum payment to rise. Oh, and you should still avoid being late anyway; that could still hurt your credit score and limit your ability to get the sweetest mortgage and car loan rates.
- That interest rate review. Remember late last year when most major banks hiked their credit card rates big time in advance of the CARD Act going into effect? Not so fast, the Federal Reserve is telling them with the new rules. Issuers will have to review their rate hikes every six months and justify them. But that's kind of a loosey-goosey requirement, and it's hard to imagine issuers not 'justifying' any rate they want. Even worse, they're starting from a very high base. Credit card interest rates in the second quarter were at their highest level in nine years, the Wall Street Journal reported Monday. That's at a time when Treasury yields, mortgage rates, and the federal funds rates that banks charge each other are within spitting distance of their all-time lows. But hey -- they can't charge you interest on a zero balance, so aim to pay off your cards once and for all and keep it that way.
- Inactivity fees are gone. That's good news; they always seemed particularly unfair. But card issuers still can cancel cards you never use, so if you want to hold onto the plastic you've already got, make sure you use each card at least every two or three months, even if it's for something small. Also, oother nuisance fees may crop up. For example, the Wells Fargo Rewards credit card charges a $24 processing fee for each airline ticket it redeems using points, the Oregonian reports.
- You've got options. If you have a good credit score, credit card issuers still want you. They stand to lose more than $3 billion annually from these new rules, and they intend to make it up by increasing the use of credit (and by collecting interchange fees from the merchants who accept their cards). Issuers sent out 640 million offers in the second quarter of 2010, an 83 percent increase over the same quarter last year, reports Synovate, a research firm. So watch your mailbox for the latest, greatest offers just coming in now. Find the ones that work best for you and don't assume that just because a card's been in your wallet for years, it's still the one you want to use.
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