In order to protect credit card users from exorbitant late fees and other penalties, the Federal Reserve Board on Tuesday approved a final rule to limit certain credit card fees and to require credit card issuers to reconsider interest rate increases imposed since the beginning of last year.
According to Federal Reserve Governor Elizabeth A. Duke, “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.”
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 it incurs as a result of violations.
- 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.
- Bans “inactivity” fees, such as fees based on the consumer’s failure to use the account to make new purchases.
- Prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
- 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.
Additional information about credit cards can be found on the Board’s website at: http://www.federalreserve.gov/creditcard/.
Personally, I’m a little torn by this. On the one hand, if the credit card companies disclose all of their fees and penalties up front, then the consumer has a right to decline the card (or just not apply). Anyone who knows me knows that I hate the idea of a “non-essential” business being told how to operate! However, given the high levels of unemployment and under-employment that we are facing, this does give some help to consumers who are struggling to stay current.
What are your thoughts on these limits? Should the banks be allowed to charge whatever they wish? Should the limits be lower? Does this encourage people to make late payments?
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