Fed Bans Inactivity Fees on Credit Cards, Caps Some Penalties

The Federal Reserve announced a few more changes to the Credit CARD Act that will be effective August 22, 2010. Many of the changes included in this final rule represent a reaction to some of the practices that credit card issuers have recently adopted.

The new rule:

• Prohibits credit card issuers from charging a penalty fee of more than $25 for paying late or otherwise violating the account’s terms unless the consumer has engaged in repeated violations or the issuer can show that a higher fee represents a reasonable proportion of the costs its incurs as a result of violations.
• Prohibits credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer’s violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.
• Bans “inactivity” fees, such as fees based on the consumer’s failure to use the account to make new purchases.
• Prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
• Requires 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.