Fed proposes new rules on credit card penalties

Inactivity fees, multiple penalties would be banned

March 04, 2010|By Eileen Ambrose | eileen.ambrose@baltsun.com

The Federal Reserve proposed new rules Wednesday on credit card penalties, including a ban on inactivity fees that some banks have been adopting as card reforms cut into their revenue.

The Credit Card Accountability Responsibility and Disclosure Act, which ushered in a wide range of consumer protections last month, also required the Fed to develop rules so cardholder penalties are "reasonable and proportional."

Among the proposals:

•A ban on inactivity fees.

•No more than one penalty on a single violation, such as a late payment.

•A penalty could not be higher than the dollar amount involved. For example, a card issuer would not be able to charge a $39 fee if a cardholder is late with a $20 payment, the Fed said. It could charge $20, though.

•Card issuers would have to tell consumers the reason for a rate increase. And issuers that raised rates since the beginning of last year would have to review whether conditions have changed and lower the rate again if warranted.

"The inactivity fee ban is definitely something we think is very positive," said Josh Frank, senior researcher at the Center for Responsible Lending. It would prevent issuers from assessing a fee for not using a card at all or for not charging enough during the year, he said.

Consumers also would benefit from limits on fees, Frank added. He said he is evaluating the 160-page proposal to determine whether it goes far enough to protect consumers.

The interest rate provision, for example, requires issuers to re-evaluate recent rate increases, but they don't have to lower rates, he said. Many issuers raised rates last year before card reforms that restrict increases took effect.

Calls to the American Bankers Association late Wednesday afternoon for comment were not immediately returned.

The Fed is accepting public comment on the proposal for 30 days. The penalty rules will take effect Aug. 22.

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