08/25/2010 12:57 pm ET Updated Nov 17, 2011

Final Credit Card Laws Go Live

If you've ever paid a penalty for sending in your credit card payment late, the following news might spark your interest: On August 22, 2010, the Federal Reserve Board implemented the third and final stage of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, which fundamentally changes how credit card agreements now operate.

Probably the most significant of these latest changes is that the Fed has placed caps on the amounts that can be charged for late credit card bill payments:
  • In general, the first late payment fee cannot exceed $25.
  • However, if someone makes more than one late payment in a six-month period, the fee can rise to $35 for every subsequent offense.
  • Late fees can no longer exceed the minimum amount owed. So, for example if your minimum payment due is$15 and you miss the deadline, your late fee for the month cannot exceed $15.
  • In some cases, a card issuer may also be allowed to charge more if it can demonstrate that a higher fee represents a reasonable proportion of the costs it incurs as a result of the violations.
Other changes that became effective August 22 include:

Consumers cannot be charged multiple penalty fees for any single transaction. So, for example, if your payment check bounces, you cannot be charged both a returned check fee and a late fee.

Cardholders can no longer be charged an "inactivity fee" for not using the account for new purchases; however, certain annual fees, such as those for rewards program cards, have not been banned.

If your credit card issuer increases your card's annual percentage rate (APR), it must spell out why. Plus, if your APR has been increased since January 1, 2009, the issuer must review that decision after six months and, if appropriate, reduce the rate within 45 days after completing its evaluation -- or provide written notice why the increase should still apply.

Here's an overview of other CARD Act changes that already went into effect earlier in the year:
  • The APR on new credit card accounts cannot be increased during the first year unless: A clearly disclosed introductory period (teaser rate) ends; it's a variable-rate card tied to an index that has increased; you enter a debt repayment workout plan and don't comply with its terms; or you're over 60 days late making at least the minimum monthly payment.
  • Card issuers must provide 45 days' advance notice before raising the APR on new transactions or making other significant account changes. Also, you're allowed to cancel the card before these changes take effect and pay off the balance at the old rate.
  • Credit card statements must be mailed at least 21 days before the balance is due. Also, payments must be credited as on-time if received by 5 p.m. on the due date.
  • When one card carries balances at different interest rates -- such as one rate for purchases and another for balance transfers -- payments must be applied to the highest-rate balance first.
  • Statements must clearly post how much you've paid in interest and fees for the year, the upcoming due date and potential late fees, and how long it would take to pay off your bill making minimum payments -- including total interest charges.
  • Over-the-limit fees cannot be charged unless you have previously agreed (opted in) to allow charges over your credit limit.
  • You cannot be charged additional fees for paying your bill online or by phone.
  • Card issuers may no longer factor in average daily balances from a previous billing cycle that wasn't fully paid off when calculating current interest charges (known as "double-cycle billing").
  • People under 21 must have an adult co-signer in order to open an account unless they can prove their ability to repay their account balance.
For further details from the Federal Reserve on the August 22 changes, click HERE. To learn more about previously adopted CARD Act provisions, click HERE. The Fed also has a great Guide that explains how credit cards work.

To learn more about particular changes to your credit card agreements, contact the bank or credit union that issues your card; and always read their mailings to ensure you're up-to-date on any account changes.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

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