Consumer Protection Law

The Federal Reserve Board's New Credit Card Protections for the Consumer

Are the days of unfair credit card practices over? While the credit card companies may mourn their passing, American consumers are seeking fair credit card practices that they can understand. In an effort to protect American consumers, the Federal Reserve Board enacted new rules in December 2008 that are set to go into effect on July 1, 2010.   The new rules are part of a coordinated effort with the Office of Thrift Supervision and the National Credit Union AdministrationThe Federal Reserve’s rules were passed after consumer testing and reviewing more than 60,000 comments. 
The New Rules
According to the Federal Reserve’s press release, the new rules are designed to accomplish several major objectives including:
  • Limiting When Credit Card Companies Can Charge Late Fees: The new rules require credit card companies to provide consumers with a reasonable amount of time to pay their bill before they impose late fees. Late fees may be imposed if the bill is sent at least 21 days prior to its due date and the payment is not received by the due date.
  • Directing How Payments Will Be Applied: Credit card companies may legitimately charge different interest rates for different types of transactions. For example, the interest rate on cash advances may be significantly higher than the interest rate on point of sale purchases. However, the new rules require that payments made in excess of the minimum amount due be applied first to the amounts owed with the highest amounts of interest.
  • Limiting When Interest Rates Can Be Raised: All scheduled changes in interest rates that will apply in the first year should be disclosed to the consumer at the time the consumer signs up for the credit card. After the first year, interest rates may increase on new purchases as long as the consumer is provided with at least 45 days prior written notice in accordance with the rules. Interest rates can be raised if the minimum balance is not received within 30 days of the billing cycle due date. Finally, interest rates that are tied to a variable index may be raised in accordance with that index at any time.
  • Ending Two Cycle Billing: Currently, if a consumer pays a bill in full one month but carries a balance the following month, the credit card company can calculate interest using time from the previous cycle. This practice will be prohibited by the new rules.
  • Reducing High Fee / Low Credit Accounts: The new rules seek to provide some balance with regard to the fees charged for low credit limit accounts. The new rules provide that fees for the first year of the account may not exceed 50% of the available credit limit.
  • Making Applications Easier to Understand: Changes will be required for credit card applications and solicitations so that they are easier to understand for the consumer.
According to Federal Reserve Chairman Ben Bernanke, the rules adopted are “sweeping reforms” that are designed to allow consumers to access credit on fair and easily understandable terms. Time will tell if Chairman Bernanke’s assessment of the rules is correct and if consumers will in fact be provided with important and meaningful protections.
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