Missing a monthly credit card payment used to mean saying farewell to low interest rates and special promotions. However, under new Credit CARD Act guidelines that take effect on August 22, banks must look at your overall account history before relegating you to their subprime portfolio. Lawmakers required the Federal Reserve to clarify the rules under which lenders can adjust annual percentage rates after an account has been opened.
Banks Must Warn About Penalty Rates
Late fees of up to $50 didn't sting as bad as the penalty finance charges many lenders impose after a missed payment. For some cardholders, a single missed deadline meant kissing farewell to low interest rates forever. Some credit card agreements forced higher APRs on late cardholders quickly and retroactively, negating some teaser rates. Therefore, a lost envelope could trigger hundreds of dollars in penalty finance charges.
The new rules force banks to wait at least 45 days before adjusting a credit card's interest rate, even when the customer acknowledges a late payment. This cooling off period allows lenders and consumers to resolve billing issues that may have caused a missed payment. It also gives consumers a window during which they can transfer balances to a bank's competitors, avoiding higher interest rates.
Penalty Rates Now Reversible
Under the new regulations, credit card issuers can only impose a punishment APR for a maximum of six months. After that, lenders may use up to 45 additional days to conduct an account review. If you haven't missed any other minimum payments during the penalty period, the bank will have to come up with a pretty convincing reason to tell the Federal Reserve why it can't roll your account back to its original interest rate.
Earlier provisions of the Credit CARD Act already streamlined marketing and contract communications from lenders. This wave of new rules gives the Fed the ability to ensure that account updates get received and understood by consumers in a timely fashion. These rules don't just force credit card companies to be more fair with their penalties, they offer a framework for greater partnership between banks and customers to resolve disputes.