Fed makes new rules in addition to CARD Act

The Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act) of 2009 set limits on when credit card companies could raise interest rates, as well as on certain types of charges they could levy on users. However, some credit card providers had found loopholes in these laws which still allowed them to charge exorbitant fees. In reaction to this, the Federal Reserve Bank is placing further limits on what providers can and cannot do.

Starting on Aug. 22nd, banks which issue credit cards will no longer be permitted to charge consumers inactivity fees on their credit cards, which are penalties for not using a card in a given time frame. Banks will not be able to charge more than one fee per spending-event on a credit card, either, thus preventing multiple service charges piling up just from one transaction. Fees of more than $25 for late payments will be prohibited as well, unless the consumer has made a late payment in the previous six months, or the bank can prove that the late payment led to charges in excess of $25.

Under the CARD Act, credit card providers had to provide advance notice of any increases in APR or retroactively applying a new APR to old balances, but did not have to provide a reason for an increase. The new rules espoused by the Federal Reserve will require that banks tell cardholders why rates are being increased, and they must evaluate any hikes in the card holder's APR every six months to determine if they are still needed and appropriate. If they are not, the bank has 45 days to reduce the APR to the original amount.

These new rules come in addition to new regulations passed down by the Federal Reserve earlier this year.

In February, the Fed specified that the advance notice given to cardholders for any increase in interest rates had to be at least 45 days, and interest rates could not be increased during the first year a credit card was in use. In an effort to assist cardholders in paying off outstanding balances, card issuers also are now required to include the time it will take to pay off a balance with minimum payments in each monthly statement.

-Seth Berger