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"Fed Finalizes 'Milestone' Credit Card Reform Rules" - (January 12, 2010 - by ecreditdaily.com Staff):

http://ecreditdaily.com/2010/01/
fed-finalizes-milestone-credit-card-reform-rules/

"The Federal Reserve today approved a 'final rule' restricting interest rate hikes in the first year of credit card agreements and prohibiting increases on existing balances - except in the case of variable-indexed interest rates.

The rule, which amends the Truth in Lending Act, finalizes key provisions of long-anticipated credit card reform that is to take full effect Feb. 22.

The Fed called it a landmark rule - the core of the legislation signed by President Obama in May and dubbed the Credit Card Accountability Responsibility and Disclosure Act of 2009, or Credit CARD Act.

The rule covers other key provisions relating to fees, methods of imposing interest charges, advance notice of changes in card agreements and the granting of a credit card to someone younger than the age of 21.

'This rule marks an important milestone in the Federal Reserve's efforts to ensure that consumers who rely on credit cards are treated fairly,' said Federal Reserve Governor Elizabeth A. Duke. 'The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts.'

Here is an overview of credit card reform's key provisions:

Interest Rates

Generally, any increase in a credit card's interest rate is prohibited in the first year of an agreement between card issuer and consumer.

Generally, an increase in rates that apply to existing credit card balances is prohibited , with a few exceptions (see "Late Payments/Penalty APRs" below).

The credit card company must inform a consumer 45 days ahead of an increase in the interest rate, change in fees, or other significant changes in the terms of the account.

If your credit card company is going to make any of these changes to the terms of your card, it must give you the option to cancel the card before the increases take effect. If you take that option, however, your credit card company may close your account and increase your monthly payment until the account is paid off.

Interest-rate increase prohibitions DO NOT apply to variable interest rates tied to an index; your rate can go up whenever the index goes up.

Late Payments/Penalty APRs

If you are 60 days late on a payment, the card issuer can impose a higher penalty APR on outstanding balances and future transactions - as long as a notice is provided with a 'clear and conspicuous' written statement of the reason for the increase.

The notice must clarify that the increase on the outstanding balance will terminate 'not later than 6 months after the date on which it is imposed' if the credit card company receives the required minimum payments on time during that period.

Card users should keep in mind that the penalty APRs can remain in place for 'future transactions' following the imposition of the penalty APR even after compliance during the six-month period.

Fees

Credit card companies are required to obtain permission from the consumer before charging fees for transactions that exceed the credit limit.

If a consumer 'opts-in' to allowing transactions that go over the credit limit, your credit card company can impose only one fee per billing cycle. The opt-in can be revoked at any time.

If your credit card company requires you to pay fees (such as an annual fee or application fee), those fees cannot total more than 25 percent of the initial credit limit. For example, if your initial credit limit is $500, the fees for the first year cannot be more than $125. This limit does not apply to penalty fees, such as penalties for late payments.

Monthly Statements

Your monthly credit card bill must give you a rundown on how long it will take you to pay off your balance if you only make minimum payments. It will also tell you how much you would need to pay each month in order to pay off your balance in three years.

Under-Age Consumers

Issuers are prohibited from providing a credit card to a consumer who is younger than the age of 21, unless the consumer has the ability to make the required payments or obtains the signature of a parent or other cosigner with the ability to do so.

A cosigner must agree in writing to any credit limit increase.

The Fed has provided a new online publication covering all the new provisions: 'What You Need to Know: New Credit Card Rules'"

When you review these credit card reform rules, you can't help but wonder how the banks were ever allowed to take advantage of credit card holders to the extent they have.

Obviously, Uncle Sam was previously much more concerned about the welfare of the banks a whole lot more than the welfare of the banks' cardholders.

For millions of folks, these reforms are "too little, too late."

- Ed Smith, Publisher
The EHS Letter Manual