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Tuesday June 15, 2010, 4:40 pm EDT
WASHINGTON (AP) -- The Federal Reserve adopted new rules Tuesday aimed at protecting credit card customers from getting socked by lofty late payment charges and other penalty fees.
The rules respond to public and congressional outrage over practices by credit card companies.
They bar credit card companies from charging a penalty fee of more than $25 for paying a bill late. They prohibit credit card companies from charging penalty fees that are higher than the dollar amount associated with the customer's violation. They also ban so-called "inactivity" fees when customers don't use the account to make new purchases and they prevent multiple penalty fees on a single late payment.
The rules take effect on Aug. 22.
"Consumers will finally be protected from the worst credit card issuer abuses," said Rep. Carolyn Maloney, D-N.Y., a major advocate for the changes.
In addition, the rules require companies to reconsider interest rates imposed on customers since the start of last year. Some lenders pushed through rate increases ahead of the first phase of sweeping new credit-card protections, which took effect earlier this year. Those first set of rules were designed to protect customers from sudden hikes in interest rates.
Congress directed the Fed to implement the new credit card protections in legislation signed into law by President Barack Obama last 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 Duke, the central bank's point person on the rules. "Card issuers must also reevaluate recent interest rate increases, and, if appropriate, reduce the rate," she added.
The American Bankers Association said the industry intends to "work quickly and diligently" to implement the new provisions.
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Out of them all I think the inactivity fees in credit cards are the biggest rip off. It's not our job to subsidize your company!
I guess this is why the banks are starting to bump their fees up on the checking side like micharch mentioned. They're trying to find ways to make up what they will lose out on with this legislation.
The only reason a great many American families don't own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments. - Mad Magazine.