Financial Regulatory Forum

US Fed seeks limit on credit card penalty fees

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.

Freeze U.S. credit card rates, says Sen. Dodd

The entrance to a Capital One Bank is seen in New York  August 17, 2009. Capital One Financial Corp's U.S. credit-card defaults and delinquencies rose in July, sending shares down 4.7 percent in premarket trading, as more Americans lost jobs and struggled to pay their debts.  REUTERS/Shannon Stapleton  (UNITED STATES BUSINESS)   WASHINGTON, Oct 26 (Reuters) – Senate Banking Committee Chairman Christopher Dodd said on Monday he was introducing legislation calling for a temporary freeze on credit card interest rates on existing balances. (more…)