Penalty APR: what triggers it, what the CARD Act limits, and how to remove it.

The CARD Act rules for triggering penalty APR

Section 226.55 of Regulation Z (which implements the CARD Act) sets the limits on when issuers can apply a penalty APR. The two key thresholds:

• For new transactions: the issuer can raise the APR for future purchases for almost any reason after providing 45 days’ written notice. The notice must explain the change and allow the cardholder to opt out (which usually means closing the account; the cardholder retains the right to pay off the existing balance at the old rate).
• For existing balances: the issuer can apply a higher APR to balances that existed before the change only when the cardholder is 60 or more days delinquent on the minimum payment. This is the strict trigger and the one that protects most cardholders most of the time.

The distinction matters because the bulk of your credit card balance at any given time is typically existing rather than new. A penalty APR that only applies to new transactions is annoying but limited; one that retroactively applies to existing balances is potentially catastrophic.

The 6-month review and required reduction

Section 226.59 of Regulation Z requires issuers that have raised an APR (for either trigger category above) to review the account at least every six months and consider whether to reduce the rate. The review is mandatory; the issuer must conduct it and document its analysis.

For penalty APRs specifically, the rule is more concrete. If the cardholder makes the required minimum payment on time for six consecutive months following the rate increase, the issuer must restore the previous APR on the balance that was repriced. This is one of the most consumer-protective provisions in the credit card statutory framework.

The protection applies automatically. You do not need to call the issuer to request the review or the rate restoration; the issuer is required to do it. In practice, some cardholders do not realise the restoration is happening because the change appears quietly on a statement. Check your statements after a six-month clean period if you believe a penalty APR was applied.

What to do if you missed a payment

If you miss a payment, the order of operations matters. The CARD Act-protected triggers and remedies kick in at specific time horizons, and your behaviour in the first few weeks can change the outcome significantly.

1. Pay immediately, even if late. Bringing the account current before the 30-day mark prevents the missed payment from being reported to the credit bureaus. The late fee will still apply (typically $25 to $40), but the credit score damage is avoided.
2. Call the issuer. Most major issuers will waive a first late fee on request if your history is otherwise clean. Politely ask, referencing your account history. This is not a guarantee but it works often.
3. Stay under 60 days late. The 60-day threshold is what allows the issuer to apply a penalty APR to existing balances under the CARD Act. Below 60 days, the worst-case scenarios involve future purchases and credit score damage, not retroactive repricing of existing balances.
4. If a penalty APR is applied, make six months of on-time payments. The mandatory rate restoration kicks in after six consecutive on-time payments. Treat the six months as your runway back to standard pricing.

Cards with no penalty APR

A small number of credit cards have no penalty APR at all. The most prominent example in our review set is the Citi Simplicity, which combines no late fees and no penalty APR. For someone who occasionally misses payments due to cash flow timing rather than financial distress, this combination has meaningful real-world value.

The Wells Fargo Reflect and BankAmericard also have no penalty APR features per their published terms. The trade with these features is usually that the standard ongoing APR sits at the higher end of the issuer’s range, because the issuer cannot recoup risk via the penalty mechanic.

For federal credit union cards, the NCUA 18% APR cap applies regardless of triggers. A penalty APR mechanic could exist on a credit union card in principle but cannot push the rate above 18% in any circumstance. See our credit union vs major bank guide for the structural context.

Reader questions

Frequently asked questions