Today, the Federal Reserve Board approved a final rule amending Regulation Z (which implements the Truth in Lending Act) and the related staff commentary, in order to implement certain provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) that become effective on February 22, 2010. The final rule establishes a number of new substantive and disclosure requirements intended to increase the fairness and transparency of practices pertaining to open-end consumer credit plans, including credit card accounts.

Among other requirements, the final rule will:

  • Prohibit credit card issuers from increasing an annual percentage rate during the first year after an account is opened, and from applying increased annual percentage rates and certain fees and charges to existing credit card balances, except under certain circumstances;  
  • Prohibit credit card issuers from opening a new credit card account or increasing the credit limit for an existing credit card account unless the issuer considers the consumer’s ability to make the required payments under the terms of the account;
  • Prohibit creditors from issuing a credit card to a consumer who is younger than the age of 21 unless the consumer demonstrates the ability to make the required payments or obtains the signature of a parent or other cosigner who demonstrates the ability to do so;
  • Limit a creditor’s ability to offer any tangible item to induce a student at an institution of higher education to apply for or open an open-end consumer credit plan offered by the creditor, and require institutions of higher education to publicly disclose agreements with credit card issuers regarding the marketing of credit cards;
  • Require credit card issuers to obtain a consumer's express consent before charging any fees on a consumer’s credit card account for extensions of credit in excess of the account’s credit limit;
  • Require credit card issuers to post on their Web sites or otherwise make available their credit card agreements with current cardholders;
  • Require credit card issuers to apply the amount of any payment in excess of the minimum payment first to balances with the highest annual percentage rate;
  • Limit the high fees associated with subprime credit cards;
  • Ban creditors from using the "double-cycle" billing method to impose interest charges;
  • Require additional disclosures on periodic statements, including an estimate of the time required to repay the account balance if the consumer makes only the required minimum payment each month.

The final rule revisions to Regulation Z are the second stage in the implementation of the Credit CARD Act signed into law this past May 2009. Certain provisions relating to change-in-terms notice requirements and the amount of time that consumers have to make payments became effective on August 20, 2009. The remaining provisions of the Credit CARD Act take effect on August 22, 2010 and will be the subject of additional Federal Reserve rulemaking at a later date.

In addition, the Federal Reserve is withdrawing two final rules, both previously adopted in December 2008 (and effective July 1, 2010), that prohibited certain unfair credit card practices and improved the disclosures consumers receive in connection with credit card accounts, in light of today's final rule which incorporates many of the requirements of those withdrawn rules.