US Fed seeks limit on credit card penalty fees

March 3, 2010

WASHINGTON, March 3 (Reuters) – The U.S. Federal Reserve on Wednesday proposed another new rule to strengthen consumer protections against abusive practices by credit card issuers, including limiting penalty fees and requiring them to reconsider past interest rate hikes.

The proposed rule would prohibit card issuers from charging late payment fees or other penalty charges that exceed the dollar amount of a consumer’s violation of the account terms.

For example, card issuers would be banned from charging a $39 fee when the card holder is late in making a $20 minimum payment. In such a case, the late fee would be limited to $20, to be paid in addition to the minimum payment.

“The rule would prevent credit card issuers from charging large penalty fees for small missteps by consumers and would require issuers to re-evaluate rate increases imposed since the beginning of last year,” Federal Reserve Governor Elizabeth Duke said in a statement.

The rule, which implements parts of the Credit Card Accountability and Disclosure Act of 2009, would require card issuers to inform consumers of the reasons for interest rate increases. The issuers must re-evaluate the reasons for rate hikes made after Jan. 1, 2009, every six months and if the review finds that circumstances have changed, they must reduce the rate where appropriate.

The proposed rule, which would take effect on Aug. 22, would also prohibit issuers from charging multiple penalties for a single late payment or other violation of account terms. It would ban issuers from charging inactivity fees on accounts based on the consumer’s failure to make purchases with a card. (Reporting by David Lawder; Editing by Dan Grebler) ((; +1 202 898 8395; Reuters Messaging:

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