The rollout of a final package of credit card rules became the law on Aug. 22. Late payment fees and other penalties are the target of one of the most recent rule changes. This completes a major overhaul of the credit card industry that was set into motion by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. A limit with $25 has been placed on overdue charges under the brand new credit reform rules.Charge card businesses have implemented drastic interest rate increases as the new guidelines are introduced. One with the brand new rules calls out the card-issuers to either support those increases with legitimate reasons or roll them back.
Applying the brakes to overdue fees and interest rates
Now that the cycle of credit reform is complete, consumers may have to pay no more than a $25 penalty for overdue repayments. Card issuers are also prohibited from charging customers for no using their card, as well as interest rate hikes over the past year need to be justified. A CNN article on the brand new charge card guidelines said that if the market conditions that warranted the rate of interest increases no long exist, those rates of interest must be adjusted accordingly. Federal regulators will review those reasons and enforce compliance with the law. However, the new rules give banks wiggle room to hike penalty fees higher than $25 if a cardholder is habitually late with payments or if the credit card company can prove the high fee is justified to offset the cost of late payments. Further checks on penalties contain a rule preventing late charges from rising above the minimum payment, or late charges totaling more than the dollar amount charged over the credit line.
Card-companies search for brand new methods to hold penalty costs flowing
Credit card corporations are facing a $3 billion hit to penalty fee revenues from the last round for brand new credit card guidelines. A Wall Street Journal report on the charge card industry’s reaction to the restrictions said that issuers are busy upping the ante for balance transfers, money advances, overseas charges and annual fees. Because of the new rules, credit card companies are also expected to raise monthly minimum obligations due, which would enable them to increase the overdue penalty fee. Credit card companies that have gotten used to huge piles with free money from penalty charges aren’t relinquishing them without a fight . A credit industry executive told the Journal that before the new credit card rules, credit card businesses collected about $11.4 billion in past due fees. The windfall is forecasted to slip to merely $8.1 billion-a 29 percent decline.
Consumer spending plays into card-issuers’ hands
While the new credit card rules are giving consumers some protection from excessive late fees, credit card companies have been jacking up rates of interest. Another CNN report said that within the second quarter, card companies raised interest rates on existing card holders to an average of 14.7 percent — up from 13.1 percent a year ago . The gap between the average credit card interest rate and the prime rate is presently 11.45 percentage points, the widest margin in 22 years according to Synovate, the market research affiliate of Aegis Group. Synovate also said that credit card spending reached the second-highest level ever within the second quarter.
Further reading
CNN
money.cnn.com
Wall Street Journal
wsj.com
