Lower Rates Ahead? New CARD Act Provisions Kick in Sunday


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If your credit card's interest rate has been increased since January 1, 2009, new rules require issuers to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.

Editor’s Note: This post comes from partner site LowCards.com.

Some of the final provisions of the CARD Act go into effect next week, and these could prove very beneficial for credit card consumers. Starting August 22, new rules may result in interest rate reductions as well as limitations on some fees.

Here’s a look at the three major provisions of this part of the CARD Act:

Interest rates

If your credit card’s interest rate has increased since January 1, 2009, the new rules require issuers to evaluate whether the reasons for the increase have changed – and, if appropriate, to reduce the rate. Issuers must also perform a review every six months on accounts that receive a rate increase. The review should determine if changes in key factors (such as cardholder credit risk, payment history, and market conditions) give reasons to reduce the rate.

Says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook

“This is the rule that could make a real difference for cardholders. Since January 2009, millions of cardholders have seen their interest rates increase. Some issuers raised rates to as high as 29.9 percent for cardholders with good credit. These higher rates shocked cardholders and they want their APR restored to the original rate. However, the catch in this is two words, if appropriate. The final decision is left with the card issuers. Credit card issuers need revenue and they may not be eager to review and restore the original rates.”

According to the LowCards.com Weekly Credit Card Rate Report, the average advertised credit card rate was 11.68 percent in January 2009. Last week, that average was 13.71 percent.

Fees

The new rules also protect card users from unreasonable late payment and other penalty fees. They should now be assessed in a way that is fairer and less costly for consumers.

Issuers can only charge one fee for a single event or transaction that violates the cardholder agreement. The late payment fee can’t be more than $25 or more than the cardholder’s minimum payment. However, if one of the last six payments was late, issuers can charge up to $35. The fee may also be higher if the credit card company can prove that the costs it incurred due to the late payments justifies a higher fee.

Currently, the late payment fee is typically $30-$39, and the same fee is charged whether you are late with a $20 minimum payment or a $100 minimum payment.

The rule also eliminates inactivity fees. Credit card companies can no longer charge fees for not using your card.

“Issuers are already reacting to this limitation. Instead of the inactivity fee, some issuers are adding a yearly minimum,” Hardekopf says.”If you charge less than this minimum amount, then they charge you an annual fee.”

Gift cards

The new rules apply to all store and merchant gift cards, as well as cards for general use, such as a Visa gift card. These rules include:

  • Limits on expiration dates. The money on your gift card will be good for at least five years from the date the card is purchased. Money added or loaded on to the card must also be good for at least five years.
  • Replacement cards. If your gift card expires and there is unspent money, you can request a replacement card at no charge.
  • Fees. The law bans dormancy, inactivity and service fees on gift cards unless there has not been any activity for twelve months and the issuer clearly discloses all fees on the packaging. In those cases, consumers can only be charged one fee per month. Last month, Congress passed legislation to extend the effective date for the disclosure requirement until January 31, 2011, for cards issued prior to April 1, 2010.

Some states have stronger state laws for gift cards and these will remain valid. Many states do not allow fees or expiration dates. In California, a card with cash value of $10 or less may be redeemed for cash.

Click here to see a guide to State Gift Card Consumer Protection laws from Consumer Reports.

Stacy Johnson

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