Final Rules on Credit Cards Limit Fines for Consumers

New rules went into effect Sunday that aim to give credit card users the chance to pay off cards without incurring massive fees for going over their spending limits.

The protections are the third phase of credit card reforms Congress passed last year as part of the Credit Card Accountability and Responsibility and Disclosure Act.

The law prevents card issuers from imposing inactivity fees, increasing interest rates without explanation or charging multiple fees for the same error.

It also caps late fees at $25 if payments aren't late more than once in a six-month period and bans fees that are larger than the debt held. Additionally, card issuers have the option of lowering rates for consumers who've been in good standing for six months after seeing their rates increase for late payments.

Gift cards will also be good for five years.

"Consumers are tired of getting stung by unreasonably high fees and getting penalized for such dubious reasons as not using their credit card enough," Pamela Banks, Senior Policy Counsel for Consumers Union, said in a statement last week. "These new protections will prohibit so-called inactivity fees and help put an end to excessive credit card fees that unfairly penalize consumers when they are late making a payment.

The Card Act first changed rules in August 2009 when it required issuers to give at least 45 days advance warning to consumers of changes to their accounts of significant changes to their accounts and gave cardholders at least 21 days to pay their monthly bills or opt out account changes.

In February of this year, the second part of the law began. It banned interest rate hikes on existing credit card balances -- with minor exceptions for late payers or variable rates.

While the national average adjustable rate was up last week over six months ago, CardRatings.com warns consumers to be careful about the new laws. In particular, it notes that rate freezes may be put on existing balances, but new purchases could be charged at higher rates.

Additionally, "creative maneuvering" by unscrupulous credit card companies may try to deny consumers lower rates for on-time payments after penalties rates have already been imposed. Among other recommendations, it also warns consumers about efforts by companies to apply payments to lower interest fees than higher ones so people end up paying more in interest than they've calculated.