On Tuesday, I wrote about the rules approved by the Federal Reserve Board that will restrict credit card penalty fees beginning on Aug. 22, 2010. Yesterday I interviewed Nick Bourke, director of the Pew Safe Credit Cards Project, for a little more insight on what the rules mean for consumers.
"We ought to see most people being subject to lower penalty fees," he says. "Right now, Pew's research shows that most people with credit cards will be subject to a $39 late fee. But as a result of these rules, we should see most of those fees come down to about $25."
Issuers can charge up to $35 if the same offense occurs within six billing cycles.
Banks can also charge more than $25 if the issuer "can show that the costs it incurs as a result of late payments justify a higher fee," according to a fact sheet on the new rules from the Fed's website. Yet issuers can't do the justifying once a customer is late. The fees would still have to be disclosed upfront, says Bourke.
The rules also ban annual or inactivity fees charged for infrequent card use. If you don't use your cards regularly, though, nothing prevents an issuer from closing or lowering your card limit. As our recent study of credit card fees shows, a number of card issuers may close accounts if they go unused for too long. So, you should still use credit cards that you want to keep on a regular basis.
The rules leave much to be desired when it comes to penalty interest rates. "Issuers remain free to charge whatever penalty interest rates they want on seriously delinquent accounts," says Bourke. The median penalty interest rate among the 12 largest bank card issuers is 29.9 percent, he says.
Issuers will have to re-evaluate certain rate increases every six months and reduce rates "if appropriate," but the rules require no specific reductions. In other words, once your rate increases, don't count on it to drop back to its previous level.
Do you think the rules go far enough?
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