The Federal Reserve has approved a final rule designed to
protect credit card users from what it considers to be unreasonable
late payment and other penalty fees.
The ruling also requires credit card issuers to reconsider
interest rate increases imposed since the beginning of last
year.
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“The new rules require that late payment and other penalty fees
be assessed in a way that is fairer and generally less costly for
consumers,” said Federal Reserve governor Elizabeth Duke.
“Card issuers must also reevaluate recent interest rate
increases and, if appropriate, reduce the rate.”
In addition, the Fed ruling:
- Prohibits credit card issuers from charging a penalty fee of
more than $25 for paying late or otherwise violating the account’s
terms unless the consumer has engaged in repeated violations or the
issuer can show that a higher fee represents a reasonable
proportion of the costs it incurs as a result of violations; - Prohibits credit card issuers from charging penalty fees that
exceed the dollar amount associated with the consumer’s violation.
For example, card issuers will no longer be permitted to charge a
$39 fee when a consumer is late making a $20 minimum payment.
Instead, the fee cannot exceed $20; - Bans “inactivity” fees, such as fees based on the consumer’s
failure to use the account to make new purchases; - Prevents issuers from charging multiple penalty fees based on a
single late payment or other violation of the account terms,
and - Requires issuers that have increased rates since 1 January 1
2009 to evaluate whether the reasons for the increase have changed
and, if appropriate, to reduce the rate.
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