Reporting from Washington — New federal credit card rules that took effect Monday outlaw the most egregious industry practices, such as retroactive interest rate increases and hidden fees, that have cost customers billions of dollars a year.
But Obama administration officials and consumer advocates said the landmark provisions needed to be followed by the creation of a regulatory agency that can ensure that the new standards are enforced and that can quickly rein in any new unfair fees or practices.
"Now that these really strong rules are in place, we need a strong agency to enforce them," said Pedro Morillas, consumer advocate for the California Public Interest Research Group. He was in Washington on Monday lobbying lawmakers for the Obama administration's proposed Consumer Financial Protection Agency.
The rules, passed by Congress in May, seek to "level the playing field" between consumers and credit card companies, President Obama said. But that field needs the new consumer agency to replace the fractured oversight of seven regulatory bodies that failed to prevent the abusive credit card practices, said Michael Barr, assistant Treasury secretary for financial institutions.
Among the changes that took effect Monday:
* Increased interest rates cannot be applied retroactively to existing balances. New rates can apply only to new charges.
* The interest rate on a fixed-rate credit card cannot be increased during the first year an account is open unless the customer is more than 60 days behind in making a payment.
* Banks cannot automatically sign up customers for programs that allow them to exceed their credit limit for a set fee. Customers must proactively opt-in to such programs.
* Fees on a credit card, such as the annual fee, cannot be more than 25% of the card's initial credit limit.
* People younger than 21 must show they can make credit card payments or have a co-signer to open an account.
* Bills must denote how long it would take to pay off the card's balance if only the minimum payment is made, and how much in total the customer would end up paying.
* Payments over the minimum must be applied to the balance with the highest interest rate.
* The due date for credit card payments must be the same every month, and payments cannot be due earlier than 5 p.m. on a business day. Customers have until the next business day when a due date falls on a weekend or a holiday.
Those provisions follow ones that took effect in August requiring banks to notify customers at least 45 days before increasing a card's interest rate and to mail statements 21 days before the bill is due, up from 14 days.
A study by the Pew Safe Credit Cards Project found that retroactive interest rate increases, and what the report called "hair-trigger" penalties assessed by banks -- such as large fees assessed when a user exceeds a card's credit limit by just $1 -- cost consumers at least $10 billion a year.
Many credit card companies had been trying to offset the expected loss of such income by reinstating annual fees, cutting credit limits and hiking interest rates before the new rules kicked in.
"They're going to have to try to make up the income some place, or reduce expenses," said Nessa Feddis, senior counsel for regulatory compliance at the American Bankers Assn. Credit card companies are experimenting with new products, and consumers will determine which ones survive, she said.
"The credit card companies got the message that they had some very frustrated customers," Feddis said.
The new rules will help consumers, but won't solve all the problems, predicted Adam Levin, chairman and co-founder of Credit.com, a website that helps consumers shop for credit.
"At least we're no longer going to get run over by the train from behind," he said. "Now we can see it coming and maybe jump to the next track."