On Tuesday, the Federal Reserve Board announced its approval of a proposal to amend Regulation Z, which implements the Truth in Lending Act, to implement provisions of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 that are scheduled to become effective on February 22, 2010.
Among other requirements, the proposed rule would:
- Subject to certain exceptions, prohibit increases in the annual percentage rate on existing balances and prohibit increases during the first year after an account is opened. After the first year, any increases on new transactions would have to comply with previously implemented notice requirements.
- Require consideration of a consumer’s ability to make required minimum payments before opening a new account or increasing the credit limit. The proposed rule also would offer guidance on making that determination, as well as a safe harbor.
- Prohibit a creditor from issuing credit cards to consumers under age 21 unless the consumer has a cosigner that meets certain requirements or the consumer has the ability to make the minimum payments. The proposed rule and commentary would also provide guidance to help creditors comply with the prohibitions against certain marketing activities related to college students.
- Require the consumer to consent before a creditor could charge a fee for “over-the-limit” transactions and even with the consumer’s consent, the proposed rule would include certain other limitations on such charges.
- Require creditors to post credit card agreements offered to the public on their Web sites and, subject to certain exceptions, submit the agreements to the Federal Reserve.
- Require that payments made above the required minimum payment first be allocated to the balance with the highest annual percentage rate.
- Limit total fees to 25% of the initial credit limit, subject to certain exceptions, such as late payment fees.
The proposed rule signifies the second stage of the Federal Reserve’s plan to implement the provisions of the Credit CARD Act. The Federal Reserve Board completed the first stage on July 15, 2009 when it approved an interim final rule to amend Regulation Z to implement the provisions of the Credit CARD Act that later became effective on August 20, 2009.
Tuesday’s proposed rule would implement the provisions of the Credit CARD Act that are currently scheduled to become effective on February 22, 2010. However, the implementation timeframe may be shortened if Congress passes recent legislation introduced by Representative Carolyn Maloney (D-NY) and House Financial Services Committee Chairman Barney Frank (D-MA) to accelerate the effectiveness of the Credit CARD Act. Under the Expedited CARD Reform for Consumers Act of 2009 (H.R. 3639 ), the effective date of the remaining provisions of the Credit CARD Act would be moved from February and August 2010 to December 1, 2009.
At this point, however, the proposed rule contemplates a February 22, 2010 effective date. Comments on the proposed rule would need to be received within 30 days after the rule is published in the Federal Register.