New credit cardholder protections imposed

Yesterday, Aug. 22, new regulations limiting credit card and gift card fees went into effect. The regulations implement consumer protections required by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). In addition to controls on fees, the industry must re-evaluate credit card interest-rate hikes on a regular basis to determine whether previously made rate hikes remain justified.

According to consumer advocacy group, Consumers Union, the new fee limits will-among other things-protect credit card holders from late fees higher than their minimum payment. Late fees also are limited to no higher than $25 unless one of the cardholder's last six payments was late or the card issuer can prove that the late payment justifies a higher fee.

The new regulations ban multiple-penalty fees for a single violation of a credit card agreement and also ban inactivity fees. Under the bans, card holders cannot be assessed both a returned payment fee and a late fee for one late payment. Nor can the card issuer fine the cardholder for closing an account. However, Consumers Union noted that the card issuer can cancel an account for inactivity.

Credit card issuers must now reevaluate interest-rate increases every six months. In certain circumstances, the issuer must reduce the rate to a lower level. The credit issuers may choose which factors to consider when reviewing accounts for rate evaluations. The first rate review must take place by Feb. 22, 2011.

Consumers Union reported that issuers now have to reduce the rate if the reason why it was raised is no longer present or if, when setting the APR for new cardholders, the reason for the previous rate hike is no longer applied. However, if the cardholder's rate jumps because a promotional period expired or the variable rate changed, then a rate review is not required.

Card issuers must now inform cardholders of why they are imposing rate hikes, which may include market conditions or a cardholder's lowered credit score for example. That's in addition to the 45 day advance notice of any rate hikes.

Pamela Banks, senior policy counsel with Consumers Union, contended, "These new protections will prohibit so-called inactivity fees and help put an end to excessive credit card fees that unfairly penalize consumers when they are late making a payment."

-Chris Meehan