Today, the Federal Reserve Board approved a proposed rule amending Regulation Z to implement certain provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) that become effective on August 22, 2010. The proposed rule implements Credit CARD Act provisions intended to "protect" credit card users from "unreasonable" late payment and other penalty fees and to require credit card issuers to reconsider increases in interest rates.
In particular, the proposed rule would, among other things:
- Prohibit credit card issuers from charging penalty fees (including late payment fees and fees for exceeding the credit limit) that exceed the dollar amount associated with the consumer's violation of the account terms.
- Ban inactivity fees, such as fees based on the consumer's failure to use the account to make new purchases.
- Prevent issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
- Require credit card issuers to inform consumers of the reasons for increases in rates.
- Require issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.
The proposed rule is the third and final stage in the implementation of the Credit CARD Act signed into law this past May 2009. The first stage of Credit CARD Act 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 second stage of Credit Card Act provisions relating to among other things, prohibiting certain increases in APR rates, banning "doubly cycle" billing and requiring substantial additional disclosure on periodic statements became effective this past February 22. Alston and Bird has issued separate advisories on the Credit CARD Act and the second stage rules that became effective on February 22.