New credit card rules benefit consumers

Earlier this week, the Federal Reserve placed further restrictions on credit card companies, designed to make sure consumers aren’t getting gouged for already-costly mistakes.

Soon the days of exorbitant late fees will be gone, according to an article on the personal finance website Billshrink. Central among the numerous changes the Fed introduced that will curb credit card companies’ costly practices was a cap on most late fees of $25 for first-time offenders. Those that are late on more than one of their last six payments will see that fee increased to $35. Similarly, no fee can exceed the minimum payment on the balance, meaning that if the minimum is $20, consumers cannot be charged anything more than that.

The new rules also barred companies from charging multiple late fees on one occurrence, and eliminated account inactivity fees, the site said. In addition, lenders are required to give 45 days’ advance notice on any interest rate increase, which clearly states the reasons for it. Banks are also now required to review all interest rate increases every six months, and, if it finds the increase to have not been "appropriate," will have 45 days to reduce the rate. Another rate reduction is required if the reason for the rate increase – like frequent late payment – no longer exists.

A Bankrate report said that there can be restrictions on these rules. For example, banks can still charge more than $25 if they can show that the costs resulting from the late payments justify a higher fee, but that would have to be disclosed up-front.

In addition, Bankrate said, just because the banks can no longer charge annual fees or inactivity fees doesn’t mean they can’t simply close the accounts they would have charged in the past, or reduce the credit limit on them.

The rule also does not prevent credit card companies from creating penalty interest rates. One expert told Bankrate that issuers are free to charge whatever penalty rates they want on seriously delinquent accounts, and the median penalty interest rate among the 12 largest issuers is 29.9 percent.

As for the rates that are reduced "if appropriate," Bankrate says that there is no hard and fast rule on the topic, so any increase that does happen might not be immediately repealed.