Precisely when and how penalty APRs – or interest rate hikes for late payments – are applied is changing significantly beginning Feb. 22 with the arrival of credit card reform rules.
Mailboxes in recent days have already seen modified credit card agreements sent by card issuers in advance of the reform startup.
The penalty APR section is one to carefully consider – in case a cardholder misses the due date on a monthly payment. The key time period for penalty APRs is now 60 days.
Much to the benefit of card users who may inadvertently miss the due date by a few days, credit card issuers can now longer slap a higher interest rate on existing balances for an undetermined period of time.
After Feb. 22, if you are late up to 60 days past the due date, the interest can only be raised on future transactions – not on “any outstanding balance.”
At or after the 60-day mark, however, it’s a different matter. The card issuer can impose a higher penalty APR on outstanding balances as well – as long as a notice is provided with a “clear and conspicuous written statement of the reason for the increase.”
In addition, the notice must clarify that the increase on the outstanding balance will terminate “not later than 6 months after the date on which it is imposed” if the credit card company receives the required minimum payments on time during that period.
However, card users should keep in mind that the penalty APRs can remain in place for “future transactions” following the imposition of the penalty APRs.
Chase, the top credit card issuer, makes it clear in changes to account terms mailed out last week to cardholders. The Chase letters cover requirements under the credit card reform rules that start in three weeks.
“The penalty APR will be applicable indefinitely to future transactions of the type that occur more than 14 days after we provide you notice about the APR increase,” Chase states.
It is up to the credit card company to set a start date for the higher penalty rate after the notice is provided.
In addition, credit card issuers must disclose on each periodic statement the due date, and the late payment fee and penalty APR that may apply if a payment is received after the due date.
Credit card reform, for the most post, offers little protection against the penalty fees that companies can impose for late payments. The reform’s provision only says that penalty fees must be “reasonable and proportional to the omission or violation” and must be clearly stated in the periodic statements.
[...] (Via eCreditDaily.com) [...]