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Wednesday, April 7, 2010

Federal Reserve Board announces rules

The Federal Reserve Board has announced that it has adopted amendments to Reg. Z--Truth In Lending (12 CFR 226) to protect consumers from abusive practices perpetrated by credit card companies.

1) Limitations on raising interest rates. The rate cannot be increased in the first year and after that a new rate can only be applied to new transactions with 45 days notice.

2) New accounts cannot be opened or a credit line on an existing account can't be increased without considering the account holders ability to pay. (What exactly the standards are for that one has to wonder)

3) Young adults and college kids. If under the age of 21 no account can be issued unless the ability to pay is demonstrated on the application or there is a co-signer over the age of 21 with demonstarted ability to make the payments. There are also limits on marketing credit cards to students. (I remember credit card companies doing this on campus back in the 80's...free T-shirt for signing up....what a crock that was...ended up being the most expensive "free" T-shirt that anyone could have imagined).

4) Over limit fees. Issuers must obtain permission from the account holder before the impose any fee for a transaction exceeding the limit on the account. No more than one over limit fee per billing cycle. They also can't impose an over limit fee for the same over the limit purchase/transaction for more than a maximum of three billing cycles.

5) Payment allocation. Payments that exceed the minimum amount on an account balance on an account with more than a single balance must be applied to the balance with the higher rate.

6) Standard credit card agreements must be disclosed and posted on a credit company's own website and also must be provided to the Federal Reserve to post on it's website to be available to consumers.

7) Fees. Fees cannot be charged to an account (other than fees for credits on returned payments, late payment or exceeding the credit limit fees) totalling in excess of 25% of the credit limit established when the account was opened during the first year the account is active/open.

8) All periodic statements are required to disclose payment information regarding payoff of the account balances. They have to state the total cost and the actual amount of time that it would take pay off the balance in full by making only minimum payments. They are also required to disclose what it would take to pay the balance in full within 36 months.

9) Credit card issuers can't charge fees for making a payment unless it is a fee for expedited service by a representative of the credit card company.

10) Credit card issuers cannot "Double-Cycle" bill consumers. If a part of a balance is paid before a grace period expires the credit card company can't assess charges on that portion of the balance that has already been repaid.

Note that the amendments to the Credit Card Act are effective 2/22/10 but that some provisions are not mandatory and so may not be in effect until 7/1/10.

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