Fed seeks public comments on proposed credit card reforms

By Michelle Singletary
Thursday, March 18, 2010

In what feels like never-ending regulatory fiddling with the Credit Card Accountability Responsibility and Disclosure Act of 2009, the Federal Reserve wants to know what consumers think about certain fees that lenders charge as penalties for late payments or other issues.

To be fair, the Fed is only following Congress's mandate, which ordered that the CARD Act's provisions be implemented in three phases. The first went into effect last summer, the second in January. The final phase will take effect this summer.

The Fed has proposed several rules amending Regulation Z, the truth-in-lending provision. In addition to penalty fees, the rules would also require credit card issuers to reconsider increases in interest rates.

If you use a credit card, take the time to read about these proposed changes and then comment. Read the federal register notice at http://www.federalreserve.gov/newsevents. You'll find a link to the notice in a news release under Banking and Consumer Regulatory Policy.

Here's a summary of the specific rules:

-- Credit card issuers would be prohibited from imposing penalties that exceed the dollar amount of an infraction. For example, let's say you are late making a required $25 minimum payment on your credit card. The lender couldn't charge you a fee that is more than the amount overdue. In another example, a consumer who exceeds the credit limit by $5 could not be charged an over-the-limit fee of more than $5.

The idea is that these types of fees should be reasonable and proportional to the violation. I suspect companies might get around this by increasing the minimum payments on their customers' accounts, which they are allowed to do under the CARD Act with proper notification.

Because the law allows companies to recover the collection costs of servicing accounts, the proposal would require card issuers to reevaluate those expenses at least annually to ensure that penalty fees are based on relatively current cost information.

-- Companies would not be allowed to impose an inactivity fee on customers who fail to use their credit cards to make new purchases. I've heard from quite a number of people who have begun to receive notices of fees for cards they haven't used in years.

-- Issuers could not charge multiple fees based on a single late payment or other violation of their account terms. So, for instance, if you are late paying your bill, the company couldn't keep charging you a late fee for that one incident.

-- Your credit card lender would have to inform you of the specific reasons for increasing your interest rate.

-- If your rate has increased since Jan. 1, the issuer would have to evaluate your account at some point. And if the reason your rate was increased is no longer an issue, if appropriate, it would have to do a rate reduction.

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