Fed issues proposal for final CARD Act provisions

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By Consumers Union on Friday, March 12th, 2010

The Fed finally issued its proposal more than two weeks late, on the two provisions of the CARD Act which will go into effect on August 22nd of this year. The proposal deals with the size of penalty fees and a provision which requires banks to review rate increases every six months. Some aspects of the proposal are good but there is still major work to do to make it more consumer friendly.

What is good?

Banks have been coming up with all kinds of ridiculous fees to make up their bottom line on the backs of their customers. The Board did the right thing by banning fees for actions that have no costs associated with them. So no more inactivity, account closure or declined transaction fees!

Penalty fees can not longer exceed the amount of the violation. So no more $39 fee for exceeding your credit limit by $10!

When an credit card bank changes the interest rate on your card, it must provide you with an actual reason for the increase. Remember, a raised interest rate will only be applied to future balances, unless you pay 60 days late. So don’t worry about these increases being applied to your existing balances.

What’s NOT so good.

You have the right under the new law to have your rate hike reviewed every six months – and reduced if the reasons for it have changed. This could be a real opportunity to undo some of the unfair rate hikes customers have been hit with this past year. The problem is the Fed wants to delay the first review until February 2011 — sticking consumers with high rates even longer. And they also are giving banks wiggle room to come up with new reasons for a rate increase during the review process. This provision needs to be strengthened to give it some teeth, and consumers should get their rate review this year.

The law required penalty rates to be reasonable and proportional. The Board proposes to set a permissible penalty fee level that an issuer can use without making any considerations. Unfortunately, the current proposal could permit a $39 fee for not paying a $50 minimum payment, one day late. This does not seem like a reasonable or proportional penalty for such a minor mistake.

The CARD Act specifically orders the Board to regulate penalty fees AND charges. A penalty rate increase is most definitely a “penalty charge” yet the Fed did not include such increases in its penalty fee restrictions. So there is currently no limit on how high a bank can set penalty interest rates.

The Fed needs to hear from you!!

For the next month or so, the Agency will be accepting comments from consumers who have something to say about these provisions. Once the comment period is over (date has yet to be determined) the Fed will look over the comments, make any changes and issue the regulations in their final form. We have provided an easy way for you to comment to the Fed. Just go to www.creditcardreform.org and tell you story in the box provided.

For a summary of the proposal, click here.

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