New credit card rules will help rebalance lopsided system

Consumer protections take effect in July 2010

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For the first time, credit cardholders will have new protections against some of the most unfair and costly industry practices. New federal rules will reduce abusive interest rate increases, limit late fee traps and allocate payments more equitably.

“These groundbreaking rules will help eliminate some of the most unfair and deceptive practices for all credit card consumers, and help those already in debt regain some control over their finances,” said Linda Sherry, Consumer Action’s Director of National Priorities.  “Unfortunately, banks are being given a full 18 months to continue their indiscriminate interest rate increases on those who can least afford it.”

Specifically the new rules will:

  • Ban credit card companies from raising the interest rate on your current balance unless you are more than 30 days late, or have a variable rate card. (Increases in interest are still allowed on future purchases as long as issuers follow a new 45-day advance notice requirement.)
  • Ban rate hikes on future purchases for the first year an account is open, unless the card issuer reveals the specific increase when you open the account.
  • Extend the time given to pay the bill and help you avoid late fees. Lenders must mail the statement 21 days before the due date or be prohibited from charging a late fee.
  • Require issuers to allocate your payment to either (1) your highest rate balance or (2) proportionally (pro rata) between your different balances.
  • Require 45 days notice before a penalty rate (or most other account changes) can be imposed.
  • Prohibit monthly maintenance fees to make up for lost interest revenue.
  • Ban credit card companies from charging interest on balances already paid (double cycle billing).
  • Prohibit the financing of fees on subprime credit cards. Issuers may not let cardholders finance account fees that total more than half the credit line. In addition, if fees total more than 25% of the credit line cardholders must be allowed to reject the card and receive a refund. (Consumers Action recommends consumers avoid subprime cards with upfront fees.)

After hearing complaints from more than 60,000 individual consumers in the last year, the Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Association issued these regulations. The new rules take effect July 2010.

Consumer Action will continue to advocate for legislation that would outlaw these practices and others that were not addressed by regulators in this rulemaking.

For more information on the new federal credit card rules, see Nos. 1 and 4 (Reg AA and Reg Z credit card rules) at this link.


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