June 16, 2010
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News: Fed Issues Credit Card Penalty Rules
The long anticipated release of the Federal Reserve's final rules relating to the CARD Act 2009 were issued on Tuesday. Pertaining to fees assessed on late credit card payments and other offenses, the Fed prohibits lenders from charging more than $25 for first time offenders and $35 for any subsequent occurrence if the same violation occurs again within six billing cycles. Late credit card penalties were not addressed in the original version of the rules released in March. However, the Fed expects new rules will promote a balance between cardholder protection while holding irresponsible and chronic offenders accountable. There is a loophole in the new rules that will take effect on August 22, 2010, which allows credit card to go beyond the cap if they can prove it cost more in collections costs than the fee.
Federal Reserve statistics indicate that the average credit card late fee assessed is $38 and the average over-the-limit fee is $36. In an effort to make it a fairer environment, earlier this year, Congress asked the Federal Reserve to develop standards for credit card penalties that were “reasonable and proportional” when considering new rules under the Card Act 2009. The Fed also prohibits lenders from charging a higher penalty than the amount of the violation. Another major concern for cardholders was lenders charging inactive fees for accounts that have not been used over a select time period. New rules also ban this practice. Furthermore, in the release, Federal Reserve Governor Elizabeth A. Duke stated that lenders must reevaluate any card rate that occurred back to January 1, 2009 and if the reason for the increase has changed, reduce the rate.
Credit card companies are also banned from charging “multiple penalty fees based on a single late payment or other violation of the account terms.” Bankers and consumer advocates are accepting of the news saying they help to hold repeat offenders accountable while being fair to others. One consumer advocate group felt the amount of the cap seemed high. The group also felt the Fed didn't adequately address interest rate caps, however, the Fed report noted that interest rates are beyond the scope of the legislation.