Late Fees Ease, But Other Card Costs Rise

Another round of rules meant to benefit credit-card holders went into effect in August. The final chapter of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 gives consumers a break on fees and penalties. Card issuers may now charge no more than $25 for a first-time late payment. If you are late a second time within six months, your issuer may charge $35. Pay on time for the next six months, however, and the penalty drops back to $25. An over-limit or late fee may not exceed the amount that you are delinquent. For example, if you are late making a $20 minimum payment, the late fee may not exceed $20.

Inactivity fees are banned, and issuers may impose only one fee per transaction. (For example, an issuer cannot charge a late fee and a returned-payment fee.) Card issuers that have increased rates since January 1, 2009, must review those increases every six months; bank examiners will monitor the process when they do routine bank examinations. At the very least, an issuer must explain why it has imposed a rate hike.

Although the CARD act was designed to protect consumers, it has already fallen victim to the law of unintended consequences. That is, issuers have responded to some of the new rules by imposing new, consumer-unfriendly policies:

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Some fixed-rate credit cards have morphed into variable-rate cards. The law permits issuers to raise interest rates on new and existing accounts if the rate is based on an index that fluctuates, such as the prime rate.

Card issuers have raised interest rates. Even if you always pay on time and do not carry a balance, issuers may raise your rate as long as they give you 45 days' notice.

Card issuers are cherry-picking the most creditworthy customers. Mintel, a market-research firm, expects issuers to mail out three to four billion credit-card offers this year, up from two billion in 2009. But with default rates still high, issuers are sending few offers to second-tier customers.

Transferring a balance can cost up to 5%. That's one way card issuers are recouping revenue from the latest round of solicitations for 0% teaser rates on balance transfers and purchases. The CARD act limits fees issuers may charge, so balance-transfer fees help feed the bottom line.