USA Today
In the past, making a late credit card payment was like forgetting your mother's birthday. Repairing the damage could take months. Sometimes, years.
Now, though, the repercussions of a tardy credit card payment may not be as long-lasting or severe. Federal rules that took effect Aug. 22 limit the amount of late fees banks can charge. The rules also make it more difficult for banks to permanently raise your interest rate if you make a late payment.
The rules, adopted by the Federal Reserve Board in June, implement provisions of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that was signed into law last year. What's new:
•Ceiling on late fees. Most late-payment fees are now capped at $25. Lenders are also barred from charging a fee that exceeds the amount of the violation. For example, if you're late making a $20 payment, the penalty can't exceed $20.
Previously, banks charged a median penalty fee of $39 for late payments or transactions that exceeded the card's limit, according to the Pew Health Group's Safe Credit Cards Project. The median penalty fee for credit unions was $25.
The law gives issuers the right to charge a higher penalty fee if they can justify the need for a higher amount. However, most issuers will probably play it safe and stick with the $25 limit, says Nick Bourke, manager of the Safe Credit Cards Project.
•Cooling off period for penalty interest rates. Banks can still hike your interest rate if you make a late payment, but they must wait at least 45 days before raising your rate, says Curtis Arnold, founder of CardRatings.com.
This gives customers time to resolve any billing issues that could have caused the missed payment, he says. Even if you were at fault, the 45-day window gives you time to pay off the balance or transfer it to a lower-rate card before the new rate kicks in.
•Time limits on penalty rates. Once a lender imposes a penalty rate, it's required to review the rate after six months. If you haven't missed any payments during that period, the bank will have to roll back the rate, unless it can give the Federal Reserve a good reason for keeping it.
•No penalties for inactivity. Do you keep an extra credit card in the back of your wallet for emergencies? Now, it won't cost you anything to do that. Lenders are prohibited from charging you a fee if you don't use your credit card to make new purchases. Your issuer could, however, close your account.
•No piling on. Card issuers are prohibited from charging you multiple fees based on a single late payment or other single transaction.
Now, the bad news
Don't let these changes lull you into thinking it's OK to get sloppy about your bills. The ceiling on penalty fees is limited to one misstep. If you make more than one late payment in a six-month period, your issuer can charge you up to $35.
Even worse is what could happen to your interest rate. Since February, card issuers have been prohibited from raising rates on your existing balance unless your account is 60 days past due. However, once you're 60 days late on a payment, your interest rate could skyrocket.
While the law says penalty fees must be "reasonable and proportional," it places no limit on penalty interest rates, Bourke says. "If you're experiencing some financial difficulty and become 60 days past due on your credit card account, the credit card issuer still has the right to impose any size of (interest rate) penalty on you it wants," he says.
And escaping that high rate won't be easy. Issuers must lower your rate to the pre-penalty level if you make on-time payments for the first six months the penalty rate is in effect. But a big increase in your interest rate could make it harder for you make minimum payments, Bourke says. And if you make a late payment during the six-month period, he says, "The penalty rate can last forever."
At least 94% of bank cards and 46% of credit union cards include the right to impose an interest rate penalty in their card holder agreements, according to Pew's analysis. Among those that disclosed their rates, the median rate in March was 29.99%, up from 28.99% in July 2009.
To avoid costly oversights, take advantage of free e-mail reminders provided by many credit card issuers, says Bill Hardekopf, chief executive officer of LowCards.com.
"My advice is, do everything you can to make your monthly payment on time."
Now, though, the repercussions of a tardy credit card payment may not be as long-lasting or severe. Federal rules that took effect Aug. 22 limit the amount of late fees banks can charge. The rules also make it more difficult for banks to permanently raise your interest rate if you make a late payment.
The rules, adopted by the Federal Reserve Board in June, implement provisions of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that was signed into law last year. What's new:
•Ceiling on late fees. Most late-payment fees are now capped at $25. Lenders are also barred from charging a fee that exceeds the amount of the violation. For example, if you're late making a $20 payment, the penalty can't exceed $20.
Previously, banks charged a median penalty fee of $39 for late payments or transactions that exceeded the card's limit, according to the Pew Health Group's Safe Credit Cards Project. The median penalty fee for credit unions was $25.
The law gives issuers the right to charge a higher penalty fee if they can justify the need for a higher amount. However, most issuers will probably play it safe and stick with the $25 limit, says Nick Bourke, manager of the Safe Credit Cards Project.
•Cooling off period for penalty interest rates. Banks can still hike your interest rate if you make a late payment, but they must wait at least 45 days before raising your rate, says Curtis Arnold, founder of CardRatings.com.
This gives customers time to resolve any billing issues that could have caused the missed payment, he says. Even if you were at fault, the 45-day window gives you time to pay off the balance or transfer it to a lower-rate card before the new rate kicks in.
•Time limits on penalty rates. Once a lender imposes a penalty rate, it's required to review the rate after six months. If you haven't missed any payments during that period, the bank will have to roll back the rate, unless it can give the Federal Reserve a good reason for keeping it.
•No penalties for inactivity. Do you keep an extra credit card in the back of your wallet for emergencies? Now, it won't cost you anything to do that. Lenders are prohibited from charging you a fee if you don't use your credit card to make new purchases. Your issuer could, however, close your account.
•No piling on. Card issuers are prohibited from charging you multiple fees based on a single late payment or other single transaction.
Now, the bad news
Don't let these changes lull you into thinking it's OK to get sloppy about your bills. The ceiling on penalty fees is limited to one misstep. If you make more than one late payment in a six-month period, your issuer can charge you up to $35.
Even worse is what could happen to your interest rate. Since February, card issuers have been prohibited from raising rates on your existing balance unless your account is 60 days past due. However, once you're 60 days late on a payment, your interest rate could skyrocket.
While the law says penalty fees must be "reasonable and proportional," it places no limit on penalty interest rates, Bourke says. "If you're experiencing some financial difficulty and become 60 days past due on your credit card account, the credit card issuer still has the right to impose any size of (interest rate) penalty on you it wants," he says.
And escaping that high rate won't be easy. Issuers must lower your rate to the pre-penalty level if you make on-time payments for the first six months the penalty rate is in effect. But a big increase in your interest rate could make it harder for you make minimum payments, Bourke says. And if you make a late payment during the six-month period, he says, "The penalty rate can last forever."
At least 94% of bank cards and 46% of credit union cards include the right to impose an interest rate penalty in their card holder agreements, according to Pew's analysis. Among those that disclosed their rates, the median rate in March was 29.99%, up from 28.99% in July 2009.
To avoid costly oversights, take advantage of free e-mail reminders provided by many credit card issuers, says Bill Hardekopf, chief executive officer of LowCards.com.
"My advice is, do everything you can to make your monthly payment on time."
