I know when I started my second play through, I forgot to change it hard mode. It prompt me that it automatically changed it to hard mode after did a mission after leaving the swamp. I remember that happening in the first Infamous game and thought it will be fine. I had to play through a 3rd time. I guess you have to put it on hard mode before you leave the swamp. Thank goodness this ghame isn't that hard on "hard mode".
You're gonna have to do it before you even restart a new game. This happened to me and I know it sucks. I just finished the game, set my settings to hard, started a new game and it unlocked on the third playthrough