New Credit Card Rules Go Into Effect

A credit card is swiped at a parking meter on Aug. 20 in Washington. New rules issued by the U.S. Federal Reserve Board regarding late payment fees and interest rate hikes took effect on Sunday. (Tim Sloan/AFP/Getty Images)

NEW YORK—The final phase of new regulations governing credit card companies went into effect on Sunday, giving some consumers much-needed relief from high late fees and skyrocketing interest rates.

Part of the Credit CARD Act, credit card companies starting on Sunday would be barred from charging late fees in excess of $25 under normal circumstances, as well as the so-called “inactivity fees,” according to the Federal Reserve, which regulates the industry.

“The new rules require that late payment and other penalty fees be assessed in a way that is fairer and generally less costly for consumers,” said Federal Reserve Governor Elizabeth Duke in a statement.

Credit card companies are also barred from charging multiple penalty fees for a single late payment or other account violation—and late fees must not exceed the customer’s monthly minimum required payment. However, fees can be larger for certain repeat offenders under extreme circumstances.

Scrutiny Over Rate Hikes

Another significant change is on rate increases. For some consumers, their credit card rate could even decrease under the new regulations.

If the credit card company has raised your rate since January 2009, it must go back and reassess the rate hike in light of the new regulations, and determine if the rate hikes are warranted. If not, the credit card company must lower the rate.

“Card issuers must also reevaluate recent interest rate increases and, if appropriate, reduce the rate,” Duke said.

Now, each rate increase must be accompanied by reasons why the rate has increased, granting consumers more transparency regarding their credit.

The Federal Reserve announced the new provisions in June. The first batch of changes went into effect on Feb. 22.

New Rules for Gift Cards

New regulations governing gift cards—bought from merchant stores as well as from credit card issuers such as American Express Co. or Visa Inc.—could make gift cards more attractive to consumers.

Also part of the CARD Act, starting this week, gift card balances cannot expire for at least five years from the date of purchase. Even if the physical card issued by the retailer expires, the balances must be able to be transferred to a new card without a fee.

And if consumers add new funds to the card, the total balance of the gift card would be good for another five years, at a minimum.

In addition, all fees and additional charges must be printed and disclosed on the gift cards. Such rules only apply to purchased gift cards, not those received during store promotions.