Fed Limits Credit Card Fees but Persels & Associates Warns Consumers to Watch for Other Bank Fees

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Credit card users can breathe a sigh of relief, said Persels & Associates Director of Operations Joe Cosentini. The Federal Reserve has finalized new credit card rules to go into effect Aug. 22, 2010 and the new rules put a limit on late fees for credit card users.

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Credit card users can breathe a sigh of relief. The Federal Reserve has finalized new credit card rules to go into effect Aug. 22, 2010 and the new rules put a limit on late fees for credit card users.

Credit card users can breathe a sigh of relief, said Persels & Associates Director of Operations Joe Cosentini. The Federal Reserve has finalized new credit card rules to go into effect Aug. 22, 2010 and the new rules put a limit on late fees for credit card users.

Late payment fees will be capped at $25 in most cases, and if consumers exceed their spending limits, they can't be charged more than the excess amount, Persel’s Cosentini explained.

The rules include:

  • A cap of $25 on occasional late fees. Today's big-bank late fees average $39.
  • A ban on inactivity fees.
  • The fee can't be more than the purchase. In other words, going over your credit limit by $10 can result in a fine of no more than $10.
  • If a company increases your interest rate, it must review that higher rate every six months.

The changes are a result of the Credit CARD Act of 2009, explained Persels & Associates Cosentini. The new rules require that late payment and other penalty fees be more in line with the consumers actual debt, he added.

President Obama signed the Credit CARD Act into law May 22, 2009. The first round of changes took effect Aug. 20, 2009, and the majority of provisions kicked in Feb. 22, 2010. The latest revisions will take effect Aug. 22, 2010.

In its final rules issued Tuesday, the Federal Reserve Board got more specific: It decided those who make one late payment will be assessed a $25 penalty instead of the $39 that is now often charged. A second late payment during the following six billing cycles will result in a $35 fee.

And card issuers can't impose penalty fees that exceed the amount of the violation. A consumer who exceeds a credit limit by $10 can't be charged more than a $10 penalty. Those late making a $25 minimum payment can't be charged a penalty of more than $25.

The rule also means that a consumer can't be charged multiple penalty fees for one transaction. So issuers can't charge both a late payment fee and a returned payment fee.

On the other hand, if someone doesn't pay her minimum payment for two or more consecutive billing cycles, the issuer can impose a late fee of up to 3 percent of the delinquent balance.

But here’s where consumers need to watch out, Persels & Associates warns. Banks are looking for new ways to raise money and are tacking on fees to consumers in their checking accounts.

For example, account maintenance fees increased by 15% between the first and third quarter of 2009, according to Money-Rates.com, a site that compiles data on banking products’ interest rates. (During the same period, overdraft fees increased by 2.8%.) While 44% of checking accounts surveyed had no maintenance fees in the first quarter of 2009, that number was down to 37% in the third quarter.

For depositors, the trend is troubling. Unlike overdraft fees, these account maintenance fees can affect even the most financially responsible consumers.

With the average account maintenance fee now at $6.63 per month, a consumer whose checking account balance averages $500 will pay nearly 16% each year -- a rate that consumers are likely to associate more with their credit cards, not their checking accounts.

What can consumers do?

Read the fine print and communications from lenders carefully, Persel’s Cosentini says. You want to make sure you are staying on top of all the new rules, and shop for banks with the lowest rates.

About Persels & Associates

Persels & Associates, LLC, and its entities are pioneers in the field of offering "unbundled" legal services to individuals who cannot afford traditional legal services. As Americans credit debt rose, Persels & Associates bridged the "gap" between consumers and their debtors. Today, Persels & Associates employs over 150 lawyers in the 50 states and has 25 central office staff attorneys with over 40,000 clients. For more information, please visit http://www.perselsandassociates.com .

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Karen McGagh
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