Research and Statistics

Fed issues final Credit CARD Act rules


The Federal Reserve issued final rules implementing the second phase of the credit card reform law. They are the most significant changes in credit card laws in decades.

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With the clock ticking toward the start of landmark changes in credit card practices and rules, the Federal Reserve Tuesday issued an 1,155-page set of final rules governing how credit card companies must implement new federal banking requirements. Fed issues final Credit CARD Act rules

Major provisions of the Credit CARD Act of 2009 are slated to begin Feb. 22. That’s the deadline for anyone who issues consumer credit cards to comply with restrictions on when credit card interest rates can be increased. The rules issued Tuesday detail how the Feb. 22 changes will be implemented.

Interest rate hikes aren’t allowed during the first year a new credit card is issued and, except under limited circumstances, rate hikes cannot apply retroactively to existing credit card balances. Hiking interest rates on future transactions, however, is still allowed as long as credit card issuers give at least 45 days’ advance notice of the change and allow customers to opt out of the rate hike.

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

Among other things, the new credit card law will:

  • Limit fees such as those charged when consumers exceed their credit limits or pay bills online or by phone.
  • Restrict issuing and marketing credit cards to young adults and on college campuses. Starting Feb. 22, anyone under 21 must get an adult to co-sign on the account if they want to open their own credit card accounts or show proof that they have an independent means to repay the card debt themselves.
  • Ban a practice called double-cycle billing, in which card issuers charge interest over two billing cycles rather than one.
  • Prevent credit card issuers from allocating monthly payments in ways that maximize interest charges to consumers.
  • Limit upfront fees charged on subprime credit cards issued to people with bad credit.
  • Ban shifting due dates so that payments will be due on the same day every month.

The Fed rules issued Tuesday are the blueprint for how banks, credit unions and other credit card issuers must implement the most sweeping in changes in credit card laws in decades.

Both consumer groups and banks were looking to the Fed to clarify a number of loopholes and unanswered questions about the law.

This rule marks an important milestone in the Federal Reserve’s efforts to ensure that consumers who rely on credit cards are treated fairly.

— Elizabeth A. Duke
Federal Reserve Board of Governors

“These rules — the most comprehensive ever seen — herald a new era for America’s credit card customers,” Kenneth J. Clayton, senior vice president and general counsel for card policy at the American Bankers Association trade group, said in a statement released shortly after the Fed rules were issued. Credit card issuers have fought many of the changes, asserting that restrictions on repricing of card interest rates would drive the cost of credit up for all consumers — including those with good credit histories. “Many practices that frustrated customers have been eliminated, and credit card users will now benefit from greater control and clearer terms for their accounts.”

Clayton added: “This February’s improvements mark the most important step in the comprehensive reform of the credit card industry. They put consumers squarely in the driver’s seat by restricting fees and requiring clearer rules and improved disclosures. The bottom line is this: The credit card industry is changing and these new rules will help empower consumers to take control of their personal finances.”

The Fed also on Tuesday unveiled a website to help consumers understand some of their new rights and protections: What you need know: New credit card rules.

See related:A comprehensive guide to the Credit CARD Act of 2009, Creative new fees escape CARD Act rules, surprise consumers

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