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Published: Thursday, 3/18/2010

Paring the penalties

NEW credit rules will give consumers more control over their cost of borrowing, and more improvements are coming.

Federal legislation adopted last year requires credit card companies to be more transparent in setting and disclosing the terms for existing accounts and new card offers. Cardholders are receiving notices, and the information warrants a careful reading because customers may drop a card if they don't agree to new terms.

Credit card companies are largely prohibited from raising rates in the first year after an account is opened and from issuing cards to most individuals under 21 unless they have a cosigner. Monthly bills must say how long it will take to pay off a balance if only minimum payments are made and what the interest charges will total.

New rates cannot be applied to purchases made prior to the increases. Customers must give permission in advance if they want to exceed their credit limits and pay the related fees.

The expected downside to the new consumer protection is that lenders will impose, or reintroduce, additional costs such as annual fees and penalties.

The Federal Reserve is proposing a remedy. The new law requires the Fed to develop regulations to make cardholder penalties "reasonable and proportional."

Under its proposal, which would take effect in August, inactivity fees would be banned, penalties for a late payment would be limited to one per violation, and fees wouldn't be allowed to exceed the value of the violation. That means goodbye to $39 charges for being late on a $20 payment or going over a card's limit by $2.

In a credit market where the average annual interest rate is 13.5 percent, the highest in five years, consumers need all the help they can get. It's also more important than ever to read the fine print in statements from credit card companies.



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