On December 18, the Federal Reserve Board, Office of Thrift Supervision and National Credit Union Administration approved final rules aimed at better protecting credit card users from unfair and deceptive practices and improving disclosures consumers receive in connection with credit card accounts and revolving credit plans. The new rules include changes to Regulation AA (Unfair Acts or Practices) that will:
- protect consumers from unexpected interest charges, including increases in the rate charged during the first year after account opening and increases in the rate charged on pre-existing credit card balances;
- forbid banks from calculating interest using the “two-cycle” billing method in which consumers who pay the full balance one month, but not the next month, are charged interest for the second month using the account balance for days in the previous billing cycle as well as the current cycle;
- prohibit a bank from treating a payment as late for any purpose unless the consumer receives a reasonable amount of time to make that payment;
- prohibit the use of payment allocation methods that unfairly maximize interest charges by requiring banks to allocate payments which exceed the minimum payment balance to the balance with the highest interest rate first or pro rata among all balances; and
- address concerns raised by subprime credit cards with high fees and low credit limits by limiting those fees in certain cases.
The rules also include changes to Regulation Z (Truth in Lending) that are intended to make credit card applications and solicitation disclosures easier for consumers to use, enhance cost disclosures at account opening to make information more conspicuous and easier to read and make disclosures on periodic statements, such as disclosure of interest and fee totals, more understandable to more effectively inform consumers of the total cost of credit.