New Credit Card Rules Designed to Protect Consumers

In May of 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 into law. The goal of this legislation was to provide consumers with protection against unfair practices by credit card companies and to put an end to unreasonable interest rate hikes and hidden fees.

According to White House statistics, nearly 80 percent of American families have a credit card and nearly half of those cards carry a balance from month to month. With the current economic conditions, more and more families are having trouble paying their bills, and credit card payments are no exception, resulting in Americans paying over $15 billion in penalty fees to credit card companies every year.

Interest Rate Restrictions

Some of the new protections went into effect in late February of this year. The Federal Reserve notes that since that time, credit card companies have not been permitted to raise annual percentage rates on existing balances or raise interest rates in the first 12 months after a consumer opens an account, with certain limited exceptions.

The February rules also required companies to provide customers with a 45 day notice in order to raise interest rates, increase fees or make other significant changes to the terms of a credit card agreement. Also, consumers under 21 years of age are now required to show proof they can pay their bill or have a cosigner to open an account.

The August Rules

In August, more protections under the CARD Act went into effect for credit card holders. One of the more immediate changes consumers will feel is the restriction on late fee and over-the-limit charges.

The Federal Reserve notes that before these protections went into effect, late fees could run as high as $39, regardless of how much or how little the outstanding balance might be. Under the new rules, the late fee cannot be more than $25, unless:

• There has been a late payment within the last six months, in which case the late fee can be $35, or
• The credit card company can show other reasons that justify a higher fee

In any case, the late payment fee cannot be more than the minimum monthly payment. Likewise, over-the-limit penalties are limited to the amount that a consumer charges over their credit line. Inactivity fees are also prohibited under the August rules. In other words, companies cannot charge people for failing to use their credit cards.

If the company does increase a customer's interest rate for any reason, they must explain why and review the rate increase every six months to see if that hike is still justified.