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Federal Reserve Limits Credit Card Fees

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Federal Reserve Bank of New YorkThe Federal Research Board approved a final rule today regarding fees for late payment, penalties, inactivity fees, and other similar charges. The rule amends Regulation Z, Truth in Lending, and governs the following:

  • Late payment fees are limited to $25, unless the consumer has a history of violations or the issuer can show the higher cost is justified by the expense associated with late payment.
  • Penalty fees cannot exceed the dollar amount associated with the violation. A $39 fee for a late payment of $20 minimum payment is prohibited, the fee can at most be $20.
  • Safe harbor fees – Issuers can avoid scrutiny by limited their fees to the “safe harbor” values of $25 for the first violation, $35 for any additional violation of the same type during the next six billing cycles (the rule that the penalty cannot exceed the violation still apply).
  • Inactivity fees are prohibited.
  • Multiple fees for a single violation are prohibited.
  • If an issuer increased interest rates since 1/1/2009, they must evaluate the reasons for the increase and reduce them if appropriate. Issuers must use reasonable methodologies to determine this and review “no less frequently than once every six months.”

You can read the actual document here with a summary of the major pieces of the final rule starting on page 4.

These rules will go into effect August 22, 2010.

(Photo: epicharmus)

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4 Responses to “Federal Reserve Limits Credit Card Fees”

  1. zapeta says:

    I think the last provision is funny…I’m sure a ton of card issuers are going to go through and reduce the rates they jacked up before the CARD act went in to effect.

  2. eric says:

    I’ve gotten some letters in the mail from issuers about new regulation. I love how they phrased it as if they voluntarily came up with the “wonderful” consumer saving ideas. :D

  3. DaveS says:

    I’m simply overwhelmed with this change in policy. I am not a huge Obama fan, but let me tell you; he is making changes. Someone is finally looking out for the consumer. I’ve been a traditional conservative republican my entire life, but let me tell you how much we’ve allowed our corporations run our lives. We’ve lost every imaginable employment benefit, retirement benefits are a joke, 401k program in my mind is a huge Ponzi scheme and is what is fueling the Stock Market 10k+ growth. Pull 401k and watch the market collapse into the 3000′s. We used to have rules against loan sharking; and rules against entrapment. Predatory vendors surround us like sharks with neon signs, and for the uneducated masses who simply don’t know better; buyer beware. I’m so embarrassed that we’ve allowed ourselves to transgress to this point.

    I can’t wait for the end to come for payday loan sharkers and cash advance pawnees. We can do without them.

  4. Bargaineering,

    Love the info. I am surprised that you do not weigh in with your view on these changes?

    I am all for them. They are designed to protect the consumer and I think they will. If the banks find loop holes, which they probably will, I think we will see amendments to reign them in appropriately. Left unregulated by the government, these credit card companies have shown that they will advantage of the consumer.


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