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Final phase of federal law restricting credit card fees, interest rates begins

By Ylan Q. Mui
Washington Post Staff Writer
Sunday, August 22, 2010; G01

The final phase of the landmark federal legislation that placed new restrictions on credit card interest rates and fees takes effect Sunday. Though the bulk of the law's provisions were enacted earlier this year, there are still a few important changes you need to be aware of:

Limiting penalty fees

The law required the Federal Reserve to write regulations outlining how much credit card companies can hit you with for things such as late payments or over-the-limit purchases. The new rules ban them from charging fees that are larger than the infraction. For example, if you are late on a $20 payment, your penalty fee cannot be more than $20. Or, let's say you spend $5 more than your max. The charge for that cannot be more than $5.

Banning certain fees

Issuers will no longer be able to charge you an inactivity fee for not using your card. They also can only charge you one fee per infraction. So if you make one late payment, they can you only ding you once.

Containing rate increases

If a credit card company raises your interest rate, it will have to tell you why. In addition, if your rate increases, the issuer must reevaluate it every six months. If you deserve to have it lowered, the card company must comply within 45 days of the evaluation. Previously, if a credit card company hiked your rate, there was no obligation to look at it again.

Protecting gift cards

The law also established new protections for store gift cards, which can only be redeemed at one retailer, and prepaid gift cards, which may be used at many locations. All gift cards sold starting Sunday must be good for at least five years. In fact, even if you have a gift card and it has an expiration date on it sooner than that, any unspent money left on the card must be honored for at least five years. You can request a replacement for any expired gift card for free.

Consumers have long complained about the number of fees on certain gift cards. Under the new law, only one fee per month can be charged and dormancy fees can only be assessed if you haven't used your card in a year. However, you will still have to pay to buy certain types of gift cards. The law also does not cover gift cards that come as part of reward or promotional programs and re-loadable prepaid cards that act as replacements for checking accounts.

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