Credit Card Information

Feds put more teeth in Credit CARD Act

by Broderick Perkins

Credit card issuers remain one step ahead of regulations to protect consumers, but the Obama Administration isn't letting them get away with questionable tactics designed to separate consumers from their cash.

Even before the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 rolled out, credit card issuers were using loopholes to take card holders to the cleaners with jacked-up interest rates, overdraft fee gouging, slashed credit limits and other questionable tactics the new law didn't fully regulate.

That's about to change.

The Federal Reserve Board on March 3 proposed a rule further amending Regulation Z (Truth in Lending) to protect credit card users from unreasonable late payment and other penalty fees and to require credit card issuers to reconsider increases in interest rates.

"This proposal addresses two key costs of using a credit card--fees and interest rates," said Federal Reserve Governor Elizabeth A. Duke.

The proposed new credit card rules are expected to be effective August 22, 2010, following public comment not likely to change the rules.

"The rule would prevent credit card issuers from charging large penalty fees for small missteps by consumers and would require issuers to reevaluate rate increases imposed since the beginning of last year," she added.

Among other things, the proposed rules would:

• Prohibit credit card issuers from charging penalty fees (including late payment fees and fees for exceeding the credit limit) that exceed the dollar amount associated with the consumer's violation of the account terms. For example, card issuers would no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee could not exceed $20.

• Ban inactivity fees, such as fees based on the consumer's failure to use the account to make new purchases.

• Prevent issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.

• Require credit card issuers to inform consumers of the reasons for increases in rates.

• Require issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.

The proposed rule is the third stage of the Federal Reserve's implementation of the 2009 Credit Card Act, enacted in May 2009.

In July 2009, the Board issued a rule implementing the provisions of the Credit Card Act that went into effect on August 20, 2009. In January 2010, the Board issued a rule to implement the provisions of the Credit Card Act that went into effect on February 22, 2010. Comments on the latest proposal must be submitted within 30 days after publication in the Federal Register, which is expected shortly.

Also see:

• Clearing Credit CARD Act confusion

• CARD Act comes with credit counseling disclosure

• Banks charging customers for NOT using credit cards

• Credit card issuers continue to squeeze consumers

• Finding the best credit cards