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The Nation

February 22, 2011

Fewer credit card rate hikes after regulations

NEW YORK — Credit card holders are facing fewer interest rate hikes and forking over sharply less in late fees.

A year after new regulations curbed a spate of questionable billing practices, federal officials say over-the-limit penalty charges have also been dramatically curtailed. The findings come from the newly created Consumer Financial Protection Bureau, which will assume responsibility for administering the regulations once it's officially up and running this summer.

The agency is set to present three sets of data at a conference it's hosting Tuesday on the one-year anniversary of the Credit Card Accountability, Responsibility and Disclosure Act, or the CARD Act. Here are the highlights:

Fees & Rate Hikes:

Penalty charges overall are down. In January of last year — just before the regulations took effect — cardholders paid $901 million in late fees. That amount was more than halved to $427 million by November, according to the agency. Also, the number of accounts assessed late fees fell by nearly 30 percent.

One reason for the drop in late fees is a new $25 cap on penalty charges. The fee can rise to $35 only if there's a second violation within a six-month period. That helped bring the average late fee down to $23, from $35.

Consumers also benefited from new rules on interest rates. Issuers can no longer hike rates on existing balances or in the first year after an account is opened. Cardholders must also be given 45 days' notice before the rate is hiked on new purchases.

Before the regulations, about 15 percent of accounts saw rate hikes over the course of a year. That figure fell to just 2 percent in the year after the new rules took effect, according to data supplied to the CFPB by the Office of the Comptroller of the Currency.

Card Issuer Policies:

A separate survey of the nine largest card issuers found that two-thirds no longer charge over-the-limit fees.

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