New regulations intended to defend credit card users from “unreasonable late payment and other penalty fees” came into power Sunday as a result of legislation approved last year.
According to the Federal Reserve, the set of laws block credit card companies from charging more than $25 for overdue payments with the exception of extreme circumstances, stops them from charging customers for not using their cards, and requires them to reassess rate increases forced since January 1, 2009.
The Fed’s rules may result in lower interest rates for consumers as banks will have to trim down rates if the reasons for increases forced in the preceding 20 months no longer exist, and regulators will evaluate and implement such cuts. However, if a cardholder is late or over his credit limit two times within six months, issuers could hike the second penalty fee to $35, or possibly more if the issuer can justify the fee to regulators, according to the Fed rules.
Along with other new rules, penalty fees can’t go over the total dollar amount incurred by the consumer’s violation that caused the fee.
For example, if a customer is late making a $10 payment, the fee can’t exceed $10 and a consumer who exceeds their credit limit by $5 cannot be charged an over-the-limit fee of more than $5.
Consumers can no longer be charged several penalty fees if the violation was based on a single late payment.
Although the Fed is cracking down on penalty fees, it hasn’t addressed the interest rate hikes that are also imposed on consumers who breach the terms of their credit card agreements. We’ll see if that comes up in the near future.