Highlights

• That great, low interest rate can still increase if you miss payments.
• Although you’ll get notice of a rate increase, you can’t reject it.
• Interest-rate increases are restricted, but penalty rates are not capped.

Over the past year, the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or Credit CARD Act, has rolled out in three major stages. The last batch of reforms recently took effect Aug. 22. Among the numerous new protections for consumers: restrictions on interest rate increases, limits on penalty fees and more time to reject changes in terms.

Now that all of the provisions have taken effect, it’s important to understand where the law falls short. The CARD Act doesn’t put controls on every possible adjustment a card issuer might make to increase profitability or reduce risk. Some of the protections leave wiggle room for credit card issuers to raise rates and impose fees, and allow them to make certain changes quietly.

Certain rate increases allowed during the first year. In general, the CARD Act prohibits rate increases and other “significant changes” in terms during the first year after account opening. It also points to four exceptions where an increase would be allowed during the first year: if the credit card has a variable rate tied to an index and the index has increased, if the account is 60 days delinquent, if a hardship plan has ended or if the promotional rate has expired. Promotional rates must last for a period of at least six months. Translation: That great, low interest rate can still increase if you neglect to make payments on time during the first year or if the promotional period doesn’t span a full 12 months.

Rate hikes on future purchases can take effect quickly. After the first year following an account opening, rate increases can be applied to future transactions with 45 days’ advance notice of the change. The issuer can even apply the higher rate to new purchases charged during the 45-day period.

“After 14 days, the new rate will apply to further transactions. At the end of the 45-day period, the bank can begin charging the new rate for any balances you accrued after the 14th day after the bank sent the notice,” states HelpWithMyBank.gov, a website operated by the Office of the Comptroller of the Currency.

In other words, piling on purchases during the 45-day period can prove to be an expensive move.

Not every change in terms requires advance notice. Rate increases on future transactions and changes to fees that are required to be disclosed at account opening in a table, along with increases to the required minimum payment, must be announced to the consumer at least 45 days in advance.

Other changes can take effect quietly. According to HelpWithMyBank.gov, “The bank does not have to provide you notice if it closes your account, suspends future credit privileges or reduces your credit line.” Issuers do have to give a 45-day notice before imposing a penalty for going over a lowered credit limit.

For this reason, it’s a good idea to read all correspondence and carefully inspect your statement for changes.

You can’t opt out of rate increases and certain changes. The CARD Act specifically gives consumers the right to reject a rate increase where the 45-day advance notice requirement is applicable. Unfortunately, the Federal Reserve issued a contradictory regulation in 2010, negating the requirement that issuers inform consumers that they may decline a rate increase.

“You still get 45 days notice of the rate increase — you just can’t reject it,” says Chi Chi Wu, a staff attorney at the National Consumer Law Center.

If you shutter your account, you still aren’t fully protected from subsequent rate hikes. “If you close your account, obviously the rate won’t apply to future (purchases). However, if there’s any other rate change that’s permitted on the existing balance … you can’t reject those changes even if you close your account,” says Wu.

Permitted rate hikes on existing debt would include those triggered by a 60-day delinquency, a change in the index for a variable-rate card, the expiration of a promotional rate or the termination of a hardship plan.

What about other changes in terms? “You can reject changes to the fees that are disclosed in the account-opening table,” says Wu. Consumers can’t reject changes to terms that are not included in the table, and they can’t reject an increase to the minimum payment.

No cap on penalty interest rates. Even though the Credit CARD Act restricts when interest rates can increase, it doesn’t actually cap penalty rates. Falling behind on payments could still mean a steep rate hike after 60 days of nonpayment, not to mention a late fee and a lower credit score. The median penalty interest rate among the 12 largest bank card issuers is 29.9 percent, according to recent research from the Pew Health Group.

Rate reductions aren’t guaranteed despite required evaluations. A provision that took effect Aug. 22 requires issuers to evaluate rate increases that were imposed on or after Jan. 1, 2009, every six months, but they only have to lower the rate if the factors reviewed indicate that a rate reduction is appropriate. The law doesn’t require a specific amount of reduction in rate. The only exception is if the rate increase was triggered by a 60-day delinquency. If the cardholder pays on time for six months following the rate hike, the bank must terminate the rate increase.

Inactivity can still trigger penalties. The final set of rules that took effect Aug. 22 bans issuers from assessing a fee for not using the card. It doesn’t prohibit issuers from assessing an annual fee in general. It also doesn’t prevent issuers from closing the account or lowering the limit due to infrequent use. As our recent study of credit card fees shows, a number of card issuers may shutter accounts if they go unused for too long.

No caps on certain fees. The Credit CARD Act limits penalty fees, imposed for violations such as late payments or exceeding the limit, and prevents the total amount of nonpenalty fees that can be charged on a card in the first year to no more than 25 percent of the initial credit limit. For example, if the credit limit upon signup is $1,000, setup fees can’t total more $250 for the first year.

Yet, the amount of any nonpenalty fee, such as a balance transfer fee or foreign transaction fee, isn’t restricted. You can merely reject increases to fees that were disclosed at account opening in a summary table when you receive the notification letter. Rejecting an increase could result in account closure.