New Rules Slash Credit Card Fees
Don't look now but a funny thing is happening to the plastic in your wallet: It's getting safer and easier to understand and use -- at least if you're the right type of customer.
The final stages of credit card reform went into effect last week, capping a two-year process that was designed to eliminate sneaky fees for everything from exceeding your spending limit to simply not using your cards.
The most recent provisions will reduce late fees for all but the most pernicious procrastinators and give those who've been hit with penalty fees a chance to redeem themselves. In addition, the new rules will eliminate a profusion of fees that could eat up the value of some gift cards before recipients had a chance to use them.
But credit card interest rates are rising, so people who carry a balance on their credit cards are likely to pay more.
"The idea behind credit reform was to make the market more fair," said
The biggest changes affect gift cards -- and, happily, they'll be in effect for the holiday shopping season.
Gift cards issued by retailers were already protected in
But until last week, bank gift cards -- which can be used in a variety of stores and carry the imprints of credit card companies such as Visa,
If the issuer of a bank gift card intends to charge fees after that, information about those fees must be prominently displayed on the card itself, along with a toll-free number for questions plus a Web address.
To give retailers time to use up their current supply of cards, bank gift cards produced prior to
Bank gift cards cannot expire in less than five years, according to the new rules. And issuers also are banned from charging more than one fee in a month.
Importantly, in states where legislators have passed more stringent gift card laws, the stricter laws apply. That means that Californians will still be allowed to get cash for bank gift card balances of
As for credit cards, users who have been hit with penalty rates may get some respite if they clean up their acts.
The new law demands that if an issuer hiked rates on a cardholder after
If the issuer raised rates for all its customers in response to souring market conditions, this review will help only if the market turns around. But if a user's high rate was due to late payments, this review should result in a rate cut within six months if the cardholder has paid on time.
The catch, said Hardekopf, is that card issuers are the ones who will determine whether a rate cut is "appropriate." That means there are no guarantees.
Finally, card issuers are barred from assessing "inactivity" charges and must set the price of penalty fees -- such as for late payments -- at a rate that reflects the cost.
What that means in practical terms is anyone's guess, Truono said. Since there are no data available to show the actual cost of handling late payments, Truono expects issuers to fall back on the new law's "safe harbor," which generally caps penalty fees at
The only exception is when someone has paid late more than once in the last six months. In those cases, issuers can charge up to
The flip side? In preparation for losing revenue from penalty fees, issuers have been hiking rates. The average interest rate charged on credit cards rose to 14.7 percent last quarter from 13.1 percent a year ago, according to market research firm Synovate.
"If you carry a balance, you're probably going to be paying more interest," Hardekopf said. "It's always been smart to pay your balance off every month, but it's getting even smarter."
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Personal Finance - New Rules Slash Credit Card Fees
(c) 2010 Kathy Kristof