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More Consumer Credit Card Protections: 4 Ways Fed Rules Affect You

July 20, 2010

By Barbara Marquand | Money Rates Columnist

You know the pain of penalty fees if you've ever paid your credit card bill late or exceeded your credit limit. Some Federal Reserve rules coming online late summer 2010 don't eliminate these financial slaps, but they remove some of the sting.

Like previous batches of consumer credit card protections that went into effect in 2010, this new group of rules stems from the Credit Card Accountability Responsibility and Disclosure (CARD) Act, signed into law in May 2009. The newest rules, effective August 22, 2010, take aim at penalty fees and require more accountability from credit card issuers for interest rate hikes.

Here's what to expect:

1. Bye Bye, Inactivity Fees

As they braced for new regulations in 2009, credit card issuers found inventive ways to raise revenue. Among them: a fee for not using your credit card. Starting in August 2010, so-called inactivity fees are banned. Beware, though, that issuers still can cancel inactive accounts, and many do if you don't use your card for some months. Charge a small purchase every now and then to maintain activity in your credit card accounts.

2. Small Credit Card Mistake, Small Fee

Under the new rules, late fees are capped in most cases at $25, and they can't exceed minimum payments. If you're tardy on a $15 minimum payment, for instance, the credit card company can charge no more than a $15 late fee. However, late fees can go as high as $35 if you've been late before in the previous six months or if the company can prove your tardiness was costly enough to justify a higher fee.

In addition, credit card companies can't charge you more than one penalty fee per transaction or event.

3. Limit on Over-Limit Fees

Your credit card company can't charge you a fee for exceeding your credit limit unless you opt in for the privilege, and if you do opt in, the fee can't exceed the amount you spend over your limit.

4. Credit Card Rates: Issuers Have Some Explaining to Do

Remember how issuers jacked up credit card rates while they still had a chance? Now the Federal Reserve says credit card companies must reconsider interest rate hikes they've imposed since January 1, 2009, and lower rates if the reasons for the increases no longer exist. In addition, when they increase rates on new purchases, they must explain why and reconsider those rate hikes every six months.

Although these new rules protect you against overly punitive penalties, they don't keep your credit rating safe. Paying your credit card bill late and maxing out your credit cards are sure ways to decrease your credit score. Pay your bills on time and keep balances below 30% of credit limits to preserve a good credit rating and avoid penalties altogether.

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