Financial Update (First Quarter 2010)

Fed Approves Final Rule Protecting Credit Card Users

The Federal Reserve Board recently approved a final rule amending Regulation Z (the Truth in Lending Act) to protect credit card users from a number of costly practices. Credit card issuers must comply with most aspects of the rule beginning on February 22. magnifying glass on credit card statement

Consumer protections strengthened
Among other things, the rule will:

  • protect consumers from unexpected increases in credit card interest rates by generally prohibiting increases during the first year after an account is opened and increases in a rate that applies to an existing credit card balance,
  • prohibit creditors from issuing a credit card to a consumer who is under 21 unless the person can make the required payments or obtains the signature of a parent or other cosigner with the ability to do so,
  • require creditors to obtain a customer's consent before charging fees for transactions that exceed the credit limit,
  • limit the high fees associated with subprime credit cards,
  • ban creditors from using the "two-cycle" billing method to impose interest charges, allowing card issuers to impose interest charges only on balances in the current billing cycle, and
  • prohibit creditors from allocating payments in ways that maximize interest charges.

"Harmful practices" banned
"This rule marks an important milestone in the Federal Reserve's efforts to ensure that consumers who rely on credit cards are treated fairly," said Federal Reserve Governor Elizabeth A. Duke. "The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts."

In December 2008, the Federal Reserve adopted final regulations prohibiting unfair credit card practices and improving the disclosures card issuers provide their customers. This rule amends aspects of those regulations to implement provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act), which was enacted in May 2009.

January 28, 2010