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Federal Reserve Approves Final Rule To Protect Credit Card Users

Federal Reserve Board of US has approved a final rule to protect credit card users from unreasonable late payment and other penalty fees and to require credit card issuers to reconsider interest rate increases imposed since the beginning of last year.

Among other things, the final rule, which amends Regulation Z (Truth in Lending), prohibits credit card issuers from charging a penalty fee of more than $25 for paying late or otherwise violating the account’s terms unless the consumer has engaged in repeated violations or the issuer can show that a higher fee represents a reasonable proportion of the costs its incurs as a result of violations.

New rules prohibits credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer’s violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.

According to new rules, card issuers cannot charge ‘inactivity’ fees, such as fees based on the consumer’s failure to use the account to make new purchases. It prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.

Th new rules requires 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 final rule represents the third stage of the Federal Reserve’s implementation of the Credit Card Accountability Responsibility and Disclosure Act of 2009, which was enacted in May 2009. The provisions of the act addressed in this rule will generally go into effect on August 22, 2010.

Elizabeth Duke, governor of Federal Reserve, said: “The new rules require that late payment and other penalty fees be assessed in a way that is fairer and generally less costly for consumers. Card issuers must also reevaluate recent interest rate increases and, if appropriate, reduce the rate.”