Federal Reserve Proposes Rule to Clarify New Credit Card Protections

Federal Reserve Proposes Rule to Clarify New Credit Card Protections

A proposed rule set forth by the Federal Reserve Board on Oct. 18 would enhance consumer protections put in place under the credit card legislation enacted in May 2009. Additionally, the proposal aims to "resolve areas of uncertainty so that card issuers fully understand their compliance obligations," according to the Fed announcement.

photo of hand holding credit card

A hard line on changing terms
Under the proposal, card issuers would be banned from revoking consumers' promotional interest rates during the period initially specified by the promotion unless they are more than 60 days late on their payment. For instance, "a card issuer that offers to waive interest charges for six months would be prohibited from revoking the waiver and charging interest during the six month period unless the account becomes more than 60 days delinquent," explained the Fed.

Limiting the issuers' fees
The proposed rule, which amends Regulation Z (the Truth in Lending Act), would also limit the fees consumers are charged prior to opening an account. These fees, combined with those charged during the first year an account is opened, can amount to only 25 percent of the initial credit limit. "A card issuer that, for example, charges a $75 fee to apply for a credit card with a $400 limit generally would not be permitted to charge more than $25 in additional fees during the first year after the account opening," said the Fed.

Last, the proposal would require card issuers to consider consumers' independent income—as opposed to household income—when evaluating whether to open an account or increase the credit limit on an existing account.

The proposed rule aims to clarify portions of the Fed's final rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act), the last of which went into effect in August. The proposal will have a 60-day comment period prior to becoming final.


October 27, 2010