March 4, 2010

Significant Credit Card Changes Proposed by the Federal Reserve

Today, the Federal Reserve proposed a rule amending Regulation Z (Truth in Lending) to protect credit card users from unreasonable late payment and other penalty fees, as well as requiring credit card issuers to reconsider increases in interest rates. This rule will go into effect on August 22, 2010.

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

The proposed rule would:

Ban inactivity fees. Some issuers have recently instituted an inactivity fee if there are no transactions on your credit card for a certain period of time.

Force issuers to evaluate rate increases. At least every six months, credit card issuers must reevaluate annual percentage rates increased on or after January 1, 2009 and if appropriate based on their review, reduce the annual percentage rate applicable to the account. This includes changes in the consumer’s creditworthiness, and to increase in the rate due to change in market conditions or the issuer’s cost of funds. However, the statute also expressly provides that no specific amount of reduction in the rate is required.

Stop credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer’s violation of the account terms. Card issuers would no longer be able to charge a $39 late fee for a $20 minimum payment. The fee could not exceed $20.

Require credit card issuers to provide reasons for increases in rates.

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

“These are significant changes in the credit card industry that will help every cardholder. But if history is any indicator, credit card issuers will find new ways to make up for the revenue they will lose when these rules take effect in August, and those changes could be in the form of new or increased fees,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

This proposed rule represents the third stage of the Board’s implementation of the Credit Card Accountability Responsibility and Disclosure Act of 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.

By Bill Hardekopf

1 Comment

Posted in Business , Finance

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About the Author: Bill Hardekopf

Bill Hardekopf is the CEO of LowCards.com a free, independent website that simplifies the confusion of shopping for credit cards and helps consumers easily compare cards in a variety of categories.

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One Comment on Significant Credit Card Changes Proposed by the Federal Reserve / Add Your Comment

Arthur says:

March 12, 2010 at 5:29 am

That’s great news! I’ve always thought that Regulation Z is issuer and not customer friendly. It’s a good sign that they’re not tilting it for it to be at least equal.

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