Fed Implements Rule to Protect Credit Card Users
A final rule was laid out Tuesday aimed at protecting consumers from misleading and predatory credit card practices.
The US Federal Reserve has set forth a final rule to implement provisions of the Credit Card Act, which was enacted in May last year that will enhance previous regulations barring unfair practices, such as abrupt interest rate increases, and improving disclosures to cardholders.
“The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts,” Federal Reserve Governor Elizabeth Duke said in a statement.
The rule prohibits interest rate increases one year after the credit card account is opened. After the initial year, issuers should give cardholders a 45-day notice before increasing rates.
This rule also bans hikes applicable to existing balances, such those of cardholders who are behind in payments.
It also requires creditors to first seek a cardholder’s approval before charging them for transactions that exceed their credit limit.
It also puts a cap on exorbitant fees associated with subprime accounts.
In addition, the rule prohibits “two-cycle” billing, which allows creditors to impose additional interest charges.
Under the rule, creditors must give uniform due dates to consumers each month, eliminating confusing cut-off times that lead to missed payments and jacked up rates. Companies who have complied with the rule have started mailing bills to customers 21 days before the due date, which has increased from 14 previously.
“These rules — the most comprehensive ever seen — herald a new era for America’s credit card customers,” Kenneth Clayton of the American Bankers Association told the Associated Press. “It really does put consumers in the driver’s seat,” he said.
The rule helps customers settle credit card dues faster and even more cheaply, as payments are first applied to highest interest-rate balances.
This landmark ruling is part of the Feds’ second implementation of the 2009 Credit Card Act. The first came in August last year, three months after the act was signed into law by President Obama in May 2009. Obama called the law’s provisions as “common sense” reforms made to “protect consumers.”
Initial amendments to Feds’ first adopted regulations in December 2008 took effect on August 20, 2009.
These provisions included one that bars creditors from issuing cards to those under the age of 21 unless they provide documented proof of their ability to pay. If not, a signature of a parent or any other responsible co-signer is required.
Creditors must comply with the Fed ruling by February 22.
Some of the US’ leading credit card issuers include American Express, JP Morgan Chase, Citigroup, Bank of America, and Capital One Financial.
Writer: Gerry
