The rules now:

1. Prevent credit card companies from charging a penalty fee of more than $25 for paying a bill late
2. Prohibit credit card companies from charging penalty fees that are higher than the dollar amount associated with the customer’s violation
3. Ban so-called inactivity fees when customers don’t use the account to make new purchases
4. Prevent multiple penalty fees on a single late payment
5. Require firms to reconsider interest rates that were imposed on customers since early 2009

The new rules take effect on August 22, 2010.

Earlier this year, another set of rules were implemented, which were designed to protect customers from sudden hikes in interest rates.

The Credit Card Accountability, Responsibility and Disclosure Act was passed in an effort to offer protection to millions of American credit card holders. If you’re one such person, here are some of the ways that you stand to benefit from this you act.

1. Longer billing periods. Banks / credit card companies must mail your statement at least three weeks before your payment is due (this will help to reduce the chance of a late fee or a late payment on your credit report)
2. Notification of higher interest rates, changes to the way finance charges are calculated and the effect of late payments on your other credit card rates. Card issuers must provide a 45-day written notice before increasing your interest rate. The card holder can decline the increase by closing their account, and they must be allowed to pay off any balance — at the old rate — within 5 years. Be careful though, should you choose this option; the card issuer is permitted to double your minimum payment.
3. New limits to the amount of, and terms under which, credit is issued to teens and young adults. Applicants under age 21 must have a co-signer or prove they (not their parents) can make the payments. This will help keep students from graduating with a degree and a humongous credit card balance.
4. Card holder approval required before processing a transaction that would put the card holder over their credit limit. Credit card companies can no longer charge an “over-the-limit fee” — unless you give them permission to allow charges that would actually put you over your limit.
5. Payments made above the minimum are to be applied to your highest-rate balance. If your balance is subject to different interest rates, any payment above the minimum must be applied first to the balance with the highest rate.
6. Provision of information (by the bank or credit card company) about how long it would take to pay off the balance when making only minimum payments

Note though, even under the new law, card holders should carefully consider both the costs and benefits of using credit cards.

The House had approved a more diluted credit card reform bill some time last month, but chose to send the stronger Senate version to the President, who will now be able to sign the bill into law by Memorial Day, as he had requested.

This landmark new credit card legislation will undoubtedly force banks and the credit card industry to reinvent itself, and also force consumers to rethink the way they use credit cards. The bill will prohibit credit card companies from raising interest rates on existing balances unless the borrower is at least 60 days late. If the card holder pays on time for the following 6 months, the company would have to restore the original rate. On cards with more than one interest rate, issuers will have to apply payments first to the debts with the highest rates, which would thus help borrowers pay off their cards more quickly.

It is important to note though, even after President Obama signs the bill, the law won’t fully take effect for nine months. That’s a 9-month loophole that reportedly has some consumer groups concerned that credit card companies will use this time to hike interest rates and fees whilst they can. Consumers, be on the look out for this!

In short the Credit Card Bill of Rights will seek to protect consumers from predatory practices, with the main objectives being:

1. To make it harder for banks to raise rates on their credit cards.
2. To mandate that terms and conditions be visible and in plain language.

We’ll be watching this one closely!

If it becomes law, the bill won’t take effect for a year, except for a requirement that customers get 45 days’ notice before their interest rates are increased. That would take effect in 90 days. Among other things, the credit card bill seeks to ban what’s known as “double-cycle billing” as well as retroactive rate hikes. The measure would also require credit card firms to give consumers a 45-day warning before they raise interest rates.

President Obama has indicated that he will be signing the credit card bill.