Lower Rates Coming on Credit Cards?

The Federal Reserve today issued it’s final rules designed to protect credit card users. In addition to capping late payment fees and eliminating fees for not using a credit card, they’re also asking many card companies to “reconsider” the rate hikes put into place last year in advance of the CARD act.

Here’s the press release from the Federal Reserve:

The Federal Reserve Board on Tuesday 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.

“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,” said Federal Reserve Governor Elizabeth A. Duke. “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 its 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.

The Fed also encouranged consumers to learn more about credit card changes via a new online publication, “What You Need to Know: New Credit Card Rules Effective Aug. 22.

There’s also more information at this page of the Federal Reserve website.

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