By Ylan Q. Mui
Washington Post Staff Writer
Monday, August 23, 2010; 10:56 AM
The sweeping reform of the credit card industry was finally completed Sunday as the last pieces of the landmark federal law designed to stop unfair or deceptive practices took effect.
The final phase restricts how much card issuers can charge in penalty fees compared with the amount of the violation. For example, if you are late paying a credit card bill with a $10 minimum payment, the penalty charge cannot be more than $10. In addition, new rules governing gift cards also took effect Sunday that require them to be honored for at least five years and allow only one fee per month.
Congress passed the Credit CARD Act last year, which set up a rolling timetable to phase it in. The bulk of the law's provisions took effect in February and prevented issuers from raising interest rates on existing balances, among other changes.
The American Bankers Association, an industry trade group, called the implementation of the law a "transformative process that signifies a fundamental change for both consumers and the industry."
"The industry has moved swiftly to implement all of these changes, and the final piece of the puzzle is now in place," said Kenneth J. Clayton, ABA's senior vice president and general counsel for card policy. "It will still take some time before we can really see how the landscape has changed, but it is clear that consumer choice and control will ultimately drive further changes in the marketplace."
A study by Pew Charitable Trusts released this summer showed that the largest card issuers have complied with the new regulations. Nick Bourke, who led the research, said that the changes have made credit cards safer to use.
"In the long run, I think what we're going to see is the market become more transparent and pricing become more predictable for consumers," he said.
However, Pew's study pointed out that the new rules do not limit increases in penalty interest rates, only the amount of fees. It also found that some credit card agreements did not disclose the size of any penalty rate hikes. The group has urged the Federal Reserve to issue rules governing those increases as well.