Fed issues final credit card regulations
January 12, 2010
Consumers Get Sweeping New Credit Card Protections on February 22
WASHINGTON, D.C. – Starting on February 22, consumers will benefit from a range of new protections against unfair credit card interest rate hikes and fees. The new safeguards were adopted by Congress last year as part of the Credit CARD Act of 2009. The Federal Reserve Board issued the final regulations required to implement the new law today.
“Consumers have waited long enough to get relief from excessive interest rate hikes and other abusive credit card practices that can trap them in debt,” said Pamela Banks, policy counsel for Consumers Union. “These new protections will help stop credit card companies from arbitrarily jacking up interest rates and ripping off consumers with expensive fees and other unfair tactics.”
The Credit CARD Act of 2009 provides consumers with a number of important new protections that go into effect on February 22, including:
Limits on interest rate hikes during the first year: Your interest rate can’t go up during the first year after you open a credit card unless it’s a variable rate card, your introductory rate expires after 6 months, or if you are more than 60 days late making your minimum payment.
Limits on interest rate hikes on existing balances: Your interest rate can never go up on your existing balance unless you have a variable rate card, an introductory rate has expired, or if you are more than 60 days late making your minimum payment.
Restrictions on how long penalty interest rates can last after late payments: If your interest rate goes up because you are more than 60 days late making the minimum payment, credit card issuers are required to restore your old interest rate if you make all of your payments on time for the first six months after the rate increase.
No more over-the-limit fees unless you ask for over-the-limit service: You can’t be charged an over-the-limit fee unless you have asked your credit card company to allow transactions that exceed your credit limit. Over-the-limit fees may be imposed only once per billing cycle if the balance is above the credit limit on the last day of the billing cycle.
Limits on fees for making payments: Credit card companies won’t be able to charge you a fee for making your payment online or by phone unless you make an expedited payment through a sales representative.
No more two-cycle billing: Credit card companies cannot reach back to an earlier billing cycle when calculating the amount of interest you can be charged in the current billing cycle. The interest you pay will be on the current billing cycle’s balance, not higher earlier balances.
Fair application of payments: Any amount that you pay above the minimum payment must be applied first to your balance with the highest interest rate before being applied to lower interest balances. There is an exception for your payments in the last two months before a deferred interest balance is due.
No more moving around the due date: Your payment will now be due on the same day each month and must be received by 5:00 pm at a location set by your credit card company.
Safeguards for young consumers: Credit card companies are prohibited from issuing cards to consumers under 21 unless the applicant can demonstrate that he or she can repay the bill independently or obtains a co-signor over the age of 21. Credit card companies can no longer give away free gifts to students on campus in exchange for filling out credit card applications. Card issuers are required to disclose marketing contracts made with colleges.
Restrictions on fees for opening a credit card: Credit card companies are barred from financing fees and charges for opening a credit card if the amount of fees and charges financed total more than 25% of the initial credit limit.
Enhanced disclosures about minimum payments: Credit card companies will be required to disclose on each billing statement how long it will take and how much it will cost to pay off your card balance if only minimum monthly payments are made.
New credit card protections that went into effect in August 2009:
More notice about interest rate hikes on future purchases: After the first year, credit card issuers must give you 45 days notice before raising your interest rate on future purchases unless you have a variable rate card, your promotional rate has expired, or if you are more than 60 days late making your minimum payment.
More rights when credit card companies change contracts: If your credit card company makes a significant change to the terms of your cardholder agreement, such as increasing a fee or charge, you have the right to reject the change and pay off your balance under the old terms. If you choose this option, your card will likely be canceled and the card company can make you pay off your balance in either 5 years or by doubling your minimum payment.
21 days to pay: Your payment cannot be considered late unless the bill is mailed or delivered to you at least 21 days before the due date
David Butler or Kristina Edmunson: 202-462-6262
Michael McCauley – 415-431-6747, ext 126