In the next stage of implementing the credit card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Federal Reserve Board on Wednesday proposed new rules to cut cardholder's late fees and interest rates.

The rules will amend Regulation Z, the Truth in Lending Act, and are set to go into effect in August 2010. The CARD Act, signed into law by President Obama in May of 2009, was set to go into full effect in three stages.

The first stage of rules took effect last August and gave cardholders the right to refuse card issuers' change in terms, including interest rate changes. It also required card issuers to send monthly statements at least 21 days before the payment due date to give cardholders enough time to pay the bill.

The second set of rules took effect February 22 this year and dealt with credit card restrictions for young adults, requiring that payments be posted to the highest interest accounts first, the banning of over-limit fees unless the cardholder consents to them, restrictions on sub-prime card fees, and the simplifying of payment due dates.

The next set of proposed rules aim to protect cardholders from excessive fees for small oversights on the consumers' end. The Fed's proposed rule would ban penalty fees (over-limit fees and late fees) that charge the consumer more than the dollar amount of the offending transaction. So for example, card issuers would no longer be allowed to charge a $39 late fee when a consumer is late in making a $20 minimum payment - the penalty fee would not be allowed to exceed $20.

The rules would also require credit card issuers to reconsider increases in cardholder's interest rates. Many consumers have recently gone through a wave of credit card rate increases as card issuers responded to a troubled financial picture and tighter legislation with higher prices for cardholders. The Fed's rule would require card 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.

"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."

Other proposed rules include requiring card issuers to inform consumers of the reasons for interest rate increases, preventing card issuers from charging multiple penalty fees based on a single instance of a violation of account terms, and banning inactivity fees on credit cards, such as fees charged based on the consumers's failure to make new purchases.



Source:
Federal Reserve Board