Final Rules Under The Credit CARD Act Provide Boost to Consumers

Aug. 23, 2010— -- The final act of a three-part set of credit card reform rules is now in effect.

So what's the last installment of The Credit CARD Act of 2009, which took effect Aug. 19?

Less painful punishment

All penalties and fees must be reasonable and proportional to the violation for which the penalty was assessed. The good news here is that penalty fees, typically $39 will likely drop to $25 and there could be fewer of them, experts say.

A get out of jail card

The second big change is that credit card issuers now must re-evaluate, every six months, any interest rate increases they have made to see if factors have changed that warrant a reduction in the rate. So, if you do the right thing, like paying on time, you could resume paying your original, lower interest rate.

Some nasty loopholes remain though

While this sounds like good news for consumers, Nick Bourke, director of the Pew Health Group's Safe Credit Cards Project, says there is a huge loophole. "The Federal Reserve refused to regulate penalty interest rate charges. Consumers have a limited right to cure the penalty and return to their original rate. But if a penalty rate is imposed and you don't immediately pay on time and do so for six months, you may be faced with paying that higher rate forever," says Bourke.

You could still have interest rates that double a minimum payment of $70 to $150, for example. "Regulators missed a chance to form comprehensive penalty interest rate protections. Though the rules created some important safeguards, the Federal Reserve refused to control the size or duration of penalty rate increases on existing balances. We urge them to ensure that all credit card penalties are reasonable and proportional," says Bourke.

Furthermore, says Curtis Arnold, founder of CardRatings.com, "Asking issuers to re-evaluate your rate every six months sounds good on paper. But, realistically, how many issuers are going to feel compelled, based on that review, to actually reduce your rate?"

Despite cries for transparency, the legislation doesn't require that the review process be revealed to you. "So it doesn't have transparency yet, and the concept of fairness is still 'self-report'. You still need to be the one to determine what is fair, by doing your homework, reading, researching and making comparisons, to decide what is fair and in your best interest," says Martha Doran, an accounting professor at San Diego State University.