As part of the final phase of credit card reform, the Federal Reserve today capped penalty fees at $25 per violation, unless the card holder has made repeated violations or the card issuer can show that a higher fee is reasonable.
In its final rule that amends the Truth in Lending Act, the Fed is also requiring that credit card issuers re-evaluate any interest rate hikes since Jan. 1, 2009 to determine if reasons for the increase have changed “and, if appropriate, to reduce the rate.”
Most of the final provisions announced today will take effect Aug. 22. It would be the third stage of the Credit Card Accountability Responsibility and Disclosure Act of 2009, which took effect Feb. 22 of this year.
“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 Fed Governor Elizabeth A. Duke. “Card issuers must also reevaluate recent interest rate increases and, if appropriate, reduce the rate.”
Under the new rules, credit card issuers are prohibited from charging:
- A penalty fee of more than $25 for paying late or violating another account term, unless the consumer has engaged in repeated violations or the “issuer can show that a higher fee represents a reasonable proportion of the costs its incurs as a result of violations;”
- Penalty fees that exceed the dollar amount tied to the 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;
- “Inactivity” fees based on the consumers’ failure to use the account to make new purchases;
- Multiple penalty fees based on a single, late payment or other violation of the card agreement terms.
The Fed has created the following webpage to clarify the new rules: What You Need to Know: New Credit Card Rules Effective Aug. 22.
