New credit card regulations will help customers

Raluca Coman

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The Wall Street reform bill has developed new rules meant to protect credit card users from “unreasonable late payment and other penalty fees”.
The Federal Reserve, which approved the regulations, sais that they are related to preventing credit card companies from charging more than 25 dollars for delayed payments, blocking them from charging customers for not using their cards, and reconsidering rate increases imposed since the 1st of January 2009. These are the final regulations of the federal legislation which will restrict the amount of the interest rates and fees related to the credit card industry. The banking industry has already started making changes according  to the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, but Kenneth Clayton of the American Bankers Association explained that this is a slow process and there will be some time needed until the effects will be seen, but it is certain that the consumers’ choices and control will actually make the  changes in the credit card market.

The Fed’s rules are likely to result in lower interest rates for consumers and the banks will have to lower the rates if the reasons for their increase which came in the last 20 months no longer exist on the market. The consumers will notice that the new penalty fee will be no more than 25 dollars. Reducing the fees was one of the priorities of the credit card law, but the Congress left it to the Fed to determine how to do it. The Fed will allow larger penalty fees to be applied if the credit history of the consumer shows a pattern of repeated violations or if the card issuer demonstrates that its issuing costs exceed the amount of 25 dollars. The penalty fees can’t go over the dollar amount caused by the consumer’s violation that spurred the fee (if a customer failed to make a 20 dollars minimum payment the fees can not be larger than 20 dollars and the consumers can not be charged multiple penalty fees if the violation is a single late payment).

Since February, the issuers of the credit cards were prohibited from hiking interest rates on existing balances as long provided that the customers paid their bills on time. They have to inform the  customers at least 45 days in advance if the interest rates or the fees change. The Fed is now trying to set penalty fees proportional to the violation that caused the fee. The 25 dollars limit represents a fees’ decrease compared to the 39 dollars average that a consumer used to pay until now. This is meant to protect card holders that have an accidental late payment, because if a consumer keeps being late the fees are likely to climb higher than before. The banks have their concerns related to the new rules, and Financial Services Roundtable’s senior lobbyist Scott Talbott says that will leave the banks with no possibility to defend themselves from late paying customers.11

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