Federal Reserve Issues Rule Clarifying Consumer Protections

Federal Reserve Issues Rule Clarifying Consumer Protections

Photo of credit cardsA final rule issued by the Federal Reserve Board on March 18, 2011, clarifies certain elements of the Board's 2010 rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act).

The March 18 rule "is intended to enhance protections for consumers who use credit cards and to resolve areas of uncertainty so that card issuers fully understand their compliance obligations," the Fed said in a press release.

The new rule clarifies that:

Credit card issuers cannot use a consumer's household income to determine his or her ability to make the required payments. Instead, the card issuer must consider the consumer's individual income or salary before opening a new credit card account or increasing the credit limit on an existing account. The rule is intended to "protect consumers from incurring unaffordable levels of credit card debt," the Fed said.
Promotional programs that waive interest charges for a specified time must follow the same advertising requirements as those that offer a reduced interest rate for a set period. For instance, a card issuer that offers to waive interest charges for six months cannot charge interest during that time unless the account becomes more than 60 days delinquent.
•   Application fees and similar charges that a consumer must pay before opening an account are included in the limitations on fees charged within the first year an account is opened. The Credit Card Act limits fees charged in the first year to 25 percent of the account's initial credit limit. For example, under the new rule, a card issuer that charges a $75 fee to apply for a credit card with a $400 credit limit cannot charge more than $25 in additional fees during the first year the account is open.

The rule is effective October 1, 2011. Card issuers may begin following the new rules earlier.

April 22, 2011