The final package of new credit card rules went into effect Sunday. The latest rules limit late payment fees and other penalties. This completes a major overhaul of the credit card industry that was set into motion by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. One of the newest federal laws cuts late payment fees to an average of $25. Over the past year as new credit card rules have been rolled out, credit card companies have been dramatically increasing interest rates. Another rule requires them to justify those increases to federal regulators.
New rules target late penalties and interest rate hikes
The newest credit card rules enacted Aug. 22 prohibit credit card companies from charging more than $25 for late payments, end the practice of charging customers for not using their cards, and order them to reconsider interest rate increases imposed starting from Jan, 1, 2009. 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. However, the new rules give banks wiggle room to hike penalty fees higher than $25 if a cardholder is habitually late with payments or if the credit card company can prove the high fee is justified to offset the cost of late payments. Another new rule prohibits penalty fees from exceeding the minimum payment or the amount charged over the credit limit.
Credit card companies scheme to recoup lost billions
The latest round of new credit card rules could subtract $3 billion a year from credit card company bottom lines. The Wall Street Journal reports card companies have already been raising fees on balance transfers and cash advances, boosting charges for overseas transactions and charging higher annual fees. Because of the new rules, credit card companies are also expected to raise monthly minimum payments due, which would enable them to increase the late payment penalty fee. Banks accustomed to reaping huge profits from penalty fees aren’t letting go easily. A credit industry executive told the Journal that before the new credit card rules, credit card companies collected about $11.4 billion in late fees. That figure is expected to drop 29 percent to about $8.1 billion.
Credit card spending rises along with interest rates
While the new credit card rules have been giving consumers some protection from excessive late fees, credit card companies have been jacking up interest rates. Another CNN report said that in the second quarter card issuers raised interest rates on existing card holders to an average of 14.7 percent — up from 13.1 percent a year ago. The current spread between the average credit card interest rate and the prime rate is 11.45 percentage points — the widest it has been in 22 years, according to Synovate market research arm of Aegis Group. Synovate also said that credit card spending reached the second-highest level ever in the second quarter.