New rules will limit the amount you pay in penalties…
In response to congressional and public outcry, new Federal Reserve rules go into effect on August 22 that will reduce fees that credit card companies charge their customers for breaking any of the terms and conditions of the card agreement. Currently, fees are as high as $39; the new rules will cap penalty fees at $35. First time infractions will be limited to no more than $25; subsequent late payments may be charged up to the maximum allowable $35 if the company can demonstrate that the cost incurred from a late payment justifies a higher fee.
In addition, a late fee cannot be imposed that is greater than the minimum payment nor can the penalty for an over-the-limit charge exceed the amount of the overdraft. For example, if a cardholder goes over their limit by $20 the overdraft fee may not be more than $20; similarly, if the cardholder’s minimum payment is $15, the late fee cannot be more than $15. There will no longer be $39 charges for missing the deadline on a $20 minimum payment.
Inactivity fees, such as those currently charged to customers who are not using their cards, will no longer be allowed. There will also be a one-fee limit preventing consumers from being hit multiple times for one mishandled transaction. If multiple purchases are approved putting the account over-the-limit, the credit card company can only penalize the first purchase.
If a credit card company increases the APR, an explanation is required and reevaluated every six months. If appropriate, it must reduce the rate within 45 days after completing the evaluation. “The new rules require that late payment and other penalty fees be assessed in a way that is fairer and generally less costly for consumers,” said Fed Governor Elizabeth Duke, the central bank’s point person on the rules. “Card issuers must also reevaluate recent interest rate increases, and, if appropriate, reduce the rate,” she added.
In summary:
- Late fee penalties cannot exceed the consumer’s minimum payment
- 1st time late fee – $25 maximum penalty
- Subsequent late fee – $35 maximum penalty
- Elimination of inactivity fees
- One-fee limit per transaction or event
- APR increases must be explained, reviewed bi-annually
This set of rules is the latest in a series of regulations announced by the Fed as it moves to implement the portion of the Credit Card Accountability, Responsibility, and Disclosure Act.
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