Fed Finalizes 'Milestone' Credit Card Reform Rules

Gallery.creditcard3The 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).
  • Universal default, the practice of raising interest rates on customers if they are late paying an unrelated bill, such as a car loan or a utility bill, will be prohibited for existing balances.
  • 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 accout 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.

Exceptions to Ban on Retroactive Interest Rate Increases

  • Credit card issuers are prohibited from applying increased annual percentage rates and certain fees to existing credit card balances, except in the following circumstances:
    (1) when a temporary or introductory rate – lasting at least six months – expires;
    (2) when the rate is increased due to the operation of an index – a variable rate;
    (3) when the minimum payment has not been received within 60 days after the due date; and
    (4) when the consumer successfully completes or fails to comply with the terms of a workout arrangement.

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.


  • 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.

Allocation of Payments

  • If you make more than the minimum payment, the credit card company must apply the excess amount to the balance with the highest interest rate.
  • If you made a purchase under a deferred interest plan (for example, “no interest if paid in full by February 2012”), you must be allowed to choose to apply extra amounts to the deferred interest balance before other balances. Otherwise, the credit card company must apply your entire payment to the deferred interest-rate balance first for two billing cycles prior to the end of the deferred interest period.

Payment Dates and Times

  • You must be mailed or delivered your credit card bill at least 21 days before your payment is due.
  • The due date should be the same date each month, and the payment cut-off cannot be earlier than 5 p.m. on the due date. If your payment due date is on a weekend or holiday, you must have until the following business day to pay.

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.
  • Card issuers are prohibited from offering free gifts in exchange for credit card applications on college campuses.

The Fed has provided a new online publication on most of the new provisions: “What You Need to Know: New Credit Card Rules

4 thoughts on “Fed Finalizes 'Milestone' Credit Card Reform Rules

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  • February 17, 2010 at 2:50 pm

    Just a note I dropped off to my credit card company.
    Dear Capital One,
    It is unbelievable the sheer audacity of you to contact me regarding making a “Balance Transrer” to my credit card amount.
    I was a loyal customer for over 15+ years, had balances in the high $10-$15, K always made my payments. The economy changes, and I am 3 days late on a payment. 3 days! Not 30 ,60, days, three dammed days. Now instead of placing a value on your long term clients, you send me a notice that I have 30 days to pay off a $6K balance and accept the chance in my interest rate from 4.5% to 34% just because you can make this big money grab before the law changes.
    I now have to get another card, pay more interest because of the way you treated me,and now you want me to give you more money? You are out of your Dammed mind.
    As soon as I have my auto deductible accounts changed, I will never use my card again.
    Bank of America treated me poorly several times, as a business owner, until their rudeness got to me So be it. I have not used B of A for over 29 years now. I am a Real Estate agent and Get a pre approved clients with B of A , I go out of my way to find them a better finance deal. I have a fiduciary duty to my clients, and I notify my clients of their behaviour in the past, how difficult they are to work with, which usually means we look at other properties not owned by B of A.
    Capital One in now on my list. Congratulations. The entire banking industry thinks you can just treat their customers as you wish. It is your business, you can do as you please, but ladies and gentlemen, we can do the same. Your success depends on our money.
    Do I believe my actions will change you, or B of A’s actions. Probably not, but I sleep better at night, knowing I did something positive. I have no idea how much business I have diverted, but I do the best I can, and share with others my disapproval in hopes it will at least plant the seed, so when businesses like yours, disappoint them, as I know you will, it’s just a matter of time, maybe they will remember me, and start their own small revolution. In days and demographics like now, more and more people are retiring, so we have a lot of time on our hands, and can always use a new conversation starter. Can you imagine what we tell our kids and grand kids as they move into the banking part of their lives.
    I welcome you, Capital One, to my personal act of defiance. You are on my shit list.
    Please refrain from sending me any more of your “New Ideas” It only refreshes my memory and resolve.
    Joe Bundura
    Former Card Holder

  • April 26, 2010 at 10:29 am

    the major players in this game will always be the lenders, You can call it what you will Its still a shell game,

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