Credit Card welcome sign.
Credit card reform aims to benefit cardholders. CC by szlea/Flickr

New credit card rules have been gradually implemented over the past year. The final set of provisions went into effect Sunday. The latest rules limit late payment fees and other penalties. This completes a sweeping credit card reform effort that began last summer with the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. Late payment charges cannot exceed $25 under one of the newest federal laws. Credit card companies have implemented drastic interest rate increases as the new rules have been introduced. One of the new rules calls out the card-issuers to either support those increases with legitimate reasons or roll them back.

Getting late penalties and interest rates under control

Now that the cycle of credit reform is complete, consumers will have to pay no more than a $25 penalty for late payments. Card issuers are also prohibited from charging customers for not using their cards, and interest rate hikes over the past year need to be justified. CNN reports that credit card companies must cut interest rates if the reasons they claim for the increases no longer apply. Federal regulators will review those reasons and enforce compliance with the law. But when it comes to the $25 late fee limit, the rules give banks a loophole to exploit: if they determine a cardholder’s late payments are habitual, they can exceed the $25 limit by saying the increase is necessary to offset the economic impact of the late payment. More enforceable limits are possible with another new rule that bars card-issuers from charging a penalty exceeding the minimum monthly payment, or a penalty exceeding the dollar amount of the violation of the credit limit.

Credit card companies addicted to penalty fees

The latest round of new credit card rules could subtract $3 billion a year from credit card company bottom lines. A Wall Street Journal report on the credit card industry’s reaction to the regulations said that issuers have been busy upping the fees for balance transfers, cash advances, overseas charges and annual fees. As a strategy to get around limits on late payment penalties, cardholders can expect their minimum payments to rise. Banks addicted to big money for nothing via penalty charges will scramble to keep the cash flowing. The Journal interviewed an industry executive who said last year banks siphoned approximately $11.4 billion in late fees from their credit card customers. That jackpot is projected to shrink by 29 percent down to $8.1 billion.

Consumer spending plays into card-issuers’ hands

Interest rates have been raised by credit card companies to combat the added consumer protection provided by the new credit card rules. An additional CNN report said that existing cardholders in the second quarter saw their interest rates rise to an average of 14.7 percent, 13.1 percent higher than last year. Synovate, the research division of Aegis Group, said that the current difference between the prime rate and the average cardholder interest rate is 11.45 points — more than it has been in 22 years. Synovate also said that credit card spending reached the second-highest level ever in the second quarter.

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