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Fed Issues New Rules for Credit Card Fees

This article was written by in Credit. 4 comments.

The Credit CARD Act of 2009, which we’ve been covering in detail throughout its long snake through Congress, is finally nearing the end of its beginning. Ever since the fall of 2008, lawmakers have been trying to end abusive credit card practices. It started with a set of proposals from the Federal Reserve, but that sort of fix would’ve been more temporary than changing the law. The law was indeed changed, and now the final rules have been written.

The last set of rules, which takes effect August 22nd 2010, includes:

“Reasonable” penalty fees

Your credit card company cannot charge you a fee of more than $25 unless:

  • One of your last six payments was late, in which case your fee may be up to $35; or
  • Your credit card company can show that the costs it incurs as a result of late payments justify a higher fee.

In addition, your credit card company cannot charge a late payment fee that is greater than your minimum payment. So, if your minimum payment is $20, your late payment fee can’t be more than $20. Similarly, if you exceed your credit limit by $5, you can’t be charged an over-the-limit fee of more than $5.

The last two parts make perfect sense to me. In essence, you can’t be penalized for an amount larger than the amount you actually owe the bank. And I’m glad that fees are being lowered to $25, but to actually put a specific dollar figure on a law which may last many years seems dangerous. What if there’s a period of extreme deflation or inflation?

No inactivity fees

Your credit card company can’t charge you inactivity fees, such as fees for not using your card.

Much like “double-cycle billing” being eradicated, this is one of those changes that I was shocked to find was actually allowed beforehand. We were penalizing people for not using a credit card, and that was legal? Good riddance.

One-fee limit

Your credit card company can’t charge you more than one fee for a single event or transaction that violates your cardholder agreement. For example, you cannot be charged more than one fee for a single late payment.

Emphasis ours. The way this is written, if the cardholder agreement allows for multiple fees for a single transaction, then it’s fine with the Fed. Always read a contract when you enter into it.

Re-evaluation of recent rate increases

If your credit card company increases your APR, it must re-evaluate that rate increase every six months. If appropriate, it must reduce your rate within 45 days after completing the evaluation.

The especially nice thing about this is that it’s retroactive to January 2009. It’s possible that some of us may actually see our interest rates go down in a couple months.

New Credit Card Rules Effective August 22nd, Federal Reserve Board

Updated April 13, 2016 and originally published June 22, 2010.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

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avatar 1 Anonymous

The Fed website, linked above, gives a good summary but doesn’t necessarily get into the details of the new rule. The regulation itself does specifically address some of the issues you raised:

With regard to inflation/deflation issues, the Fed included language in the new regulations that allows the dollar amount to be “adjusted annually by the Board [the Fed] to reflect changes in the Consumer Price Index.” 12 CFR 226.52(b)(1)(ii)(B). Those adjustments would be in $1 (or more) increments.

I also think your emphasis on the one-fee limit is a bit misleading. The actual text of the new regulation reads as follows: “(ii) Multiple fees based on a single event or transaction. A card issuer must not impose more than one fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan based on a single event or transaction….” 12 CFR 226.52(b)(2)(ii).

I think the Fed did a good job here of indicating that what matters is that it was a “single event or transaction” rather than a violation(s) of the account agreement. For example, if a consumer sent in a payment that was both (a) late and (b) returned for insufficient funds – the financial institution could only charge one fee even though the consumer violated two provisions of the account agreement.

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avatar 2 Anonymous

Glad to see the government is taking action to prevent these companies from overcharging the public. They have been doing it for years and someone needed to put a leash on these companies.

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