New Credit Card Rules: Brace Yourself for the Backlash My Business Blog

New Credit Card Rules: Brace Yourself for the Backlash

On Tuesday, the Federal Reserve Board enacted additional consumer protections for credit card users in the ongoing game of legislative whack-a-mole. These new rules, which won’t go into effect until August 22, may bring some relief to perpetually bedraggled plastic swipers. But if we’ve learned anything from recent history, it’s that each push against credit card issuers nets a an equal or greater reaction from the industry. Let’s take a quick look at some of the bones that the Fed is throwing before looking into the crystal ball to see what overcompensating screw-over tactics the credit card industry will cook up next.

Late Fees and Penalties Capped at $25

Under the new rules, late fees and over-the-limit penalties cannot exceed $25. Furthermore, the fee cannot exceed the minimum payment that you missed or the amount that you overcharged.

So, for example, if you have a balance of $200 and your minimum payment is $15.95 and you miss it, your late fee has to be equal or less than $15.95. If your minimum payment is $66, the most they can charge you for a late fee is $25. Unless, you were late before in the last 6 months. If that’s the case, your late fee can bump up to $35. Furthermore, credit cards can get away with higher late fee penalties if they can “show that the costs it incurs as a result of late payments justify a higher fee.” Whatever that means.

The same goes for over-the-limit fees. If you have a credit line of $2,000 and you wind up charging $2,010 in one month, they can only ding you for $10. Also, for any kind of penalty fee, they can only charge you once per transgression. It’s kind of like the double jeopardy of credit card bills.

Inactivity Fees Are Over

Inactivity fees were one of the big comebacks this spring that were dusted off in response to the first waves of the CARD Act. Now, the Fed is banning the practice of charging you for failing to use your card. Of course, they’ve already found a way around this—card companies are imposing new annual fees that are “waived” if you charge a certain amount. Six of one, half dozen of the other.

Rate Increases Must Now Be Explained

Now, if a credit card company increases your APR, they must give you an explanation of why. On the same note, they have to go back and re-evaluate any rate increases every six months. If the reason they originally made up for increasing your interest rate no longer applies, then they have to revert your interest rate back to the original rate.

Maybe it’s just me, but this seems like the most pointless of the new rules. All this will do is make it open season for bullshit excuses. You might expect banks to make the mistake of claiming they are raising your rates because the Fed rate or some other index has gone up, but then they’d have to undo it once things leveled off. Instead, they are likely to send you an extremely carefully worded letter with some complex and indisputable reason for raising your interest rate. It’ll probably be something along the lines of “Because there ain’t nothin’ you can do about it” which will be equally true 6 months from now, even with new legislation.

Anyway, now it’s prediction time. How do you think the credit card industry will respond to these new limitations? Late fees and other penalties were their cash cow, and it looks like the Fed just hobbled it (not that a cash cow’s ability to run is what makes it profitable—it’s not a perfect metaphor, sorry).

Here’s what I think will happen:

You’ll start losing your rewards for minor transgressions. Diner’s Club does it. American Express does it. Capital One does it, too. The moment you are even a single day late on your payment, they take away all of your rewards points. For the first two I mentioned, you can get them back if you pay them a ransom–$15 or $29, respectively. But with Capital One, when they are gone, they’re gone. Expect this to be the norm.
Checking accounts will cost you. Free checking accounts are quickly becoming extinct. Banks that used to cash in on overdraft protection (which customers must now opt-in for) are going to make up some of that revenue by charging ever higher maintenance fees on checking accounts. According to Bankrate, the average cost of an interest bearing checking account climbed from $11.97 in 2008 to $12.55 in 2009. This trend is likely to continue.
Customer service will make you pay. That is, they’ll make you pay to talk to a human. When you call HSBC to pay your bill by phone, they charge you $15 to get a flesh and blood human being to handle your transaction. A nice tactic that taxes those who prefer talking to people, rather than robots. And that’s most of us.

Those are my best guesses. What are yours? Tell us what you see on the writing on the wall in the comments below.

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