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The Federal Reserve Board's Credit Card Rules

In 2010, Consumers Will Have New Credit and Overdraft Protections

© Alex Sharp

Dec 20, 2008
The Federal Reserve is Nipping Unfair Practices, SqueakyMarmot (Flickr Creative Commons License)
Consumer voices have made a difference in how banks will treat their credit card customers. The Federal Reserve Board has heard complaints and will require changes.

Credit cards are becoming more necessary in daily life. Online shopping requires either a credit card or Paypal. Most gas station expect pre-payment or credit/debit card payment. Credit cards can offer consumer protection and peace of mind in emergencies, but they are also dangerously easy to use. The new Federal Reserve Board rules should make the responsibilities of credit easier to understand for new credit card users, such as young adults with their first credit cards.

The Federal Reserve issued a press release with details of the changes, and here are some highlights from the new Regulation AA amendments, Regulation DD amendments, and Regulation Z amendments. The Federal Reserve Board also included proposed regulations for Electronic Fund Transfers (Regulation E). The Federal Reserve Board has made a comprehensive statement available, and the quoted regulations in this article are from Rules Regarding Credit Card Accounts and Overdraft Services of December 18, 2008.

Regulation AA Amendments

Regulation AA focuses on unfair and deceptive practices. These amendments are designed to add more protection for credit card users.

Changes in Payment Allocation

Banks must allow "a reasonable amount of time" for customers to make credit card payments. After payments are accepted, the bank will have rules on how the payment is applied. If a customer has different interest rates on balances, the bank must apply payments (beyond the minimum) in one of two ways:

  1. apply the payment to the balance with the highest rate or
  2. apply the payment proportionally across all balances

Interest Rate Rule Changes

Banks will have to stick with the interest rates that were established when the customer opened the credit account, except under the following circumstances:

  • the bank stated the rate would expire at a certain date (such as a promotional rate), or
  • the account is a variable rate account (which means the customer applied for an account knowing that the rate would change according to the index), or
  • after one year, the bank gives customers 45 days notice of rate changes, or
  • the customer is late with a payment by "more than 30 days after the due date".

Changes in Billing and Fees

"Two-Cycle" (also known as "Dual Cycle") billing will no longer be allowed. This technique enables billing offices to charge interest on balances that were part of the previous month's balance, even if the balance was paid in full.

Security deposits and fees will be more regulated and limited. Customers will have fees limited to 25% of the initial credit limit and "additional amounts (up to 50 percent) will be spread evenly".

Regulation DD Amendments

Regulation DD focuses on the Truth in Savings Act of 1991. The new changes will provide bank customers with more clarity with their overdraft protection. Banks will have to be more clear with their communications about fees, and automated banking information will have to differentiate balances.

For example, when a customer calls an automatic bank line for balance information, the bank will provide the account balance without including the potential overdraft. If a consumer has $1000 in an account and a $300 overdraft, the balance will be stated as $1000, not $1300.

Regulation Z Amendments

The Federal Reserve Board also amended Regulation Z, which was born from the Truth In Lending Act of 1968. In addition to already established consumer protections, banks will make credit card applications and statements easier for their customers to understand. Changes will include:

  • specific guidelines for fonts
  • rules for how information is presented on the page
  • itemized interest rates
  • monthly and year-to-date totals for both fees and interest charges

Regulation DD changes, the overdraft protection changes, will be effective as of January 1, 2010. Regulation AA and Regulation Z changes, the credit card protections, will be effective as of July 1, 2010.


The copyright of the article The Federal Reserve Board's Credit Card Rules in Consumer Rights is owned by Alex Sharp. Permission to republish The Federal Reserve Board's Credit Card Rules in print or online must be granted by the author in writing.


The Federal Reserve is Nipping Unfair Practices, SqueakyMarmot (Flickr Creative Commons License)
        


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Comments
Mar 1, 2009 8:05 PM
Guest :
Saturday, February 28, 2009
The Last Thing We Need Right Now...
I recently received an "important notice" about a change in terms for one of my credit card accounts. In the midst of our country's economic crisis, they have the gall to send me a very nicely formatted and printed notice that they are going to take advantage of the situation. For example, my previous APR on purchases was 10.90%. They've decided to raise it to 17.90%, or 14.65% over the Prime Rate.

In addition, they have upped their "Default" Annual Percentage Rate from 17.99% to 29.4%, or 26.15% above the Prime Rate.

And here I thought that interest rates (including the Prime Rate) had been reduced a few times in the past year.

Thanks, Capital One, for demonstrating YOUR company's patriotism.

Capital One couldn't even get the address correct on a transaction I initiated online--which has cost me much time, money, and turmoil--in addition to a long series of phone calls. During that debacle, I found out the name of the President of your company--Richard D. Fairbank. Instead of taking a salary, he chose to be satisfied with mere stock options. According to Forbes magazine, dated 4/30/2008,
( http://www.forbes.com/lists/2008/12/lead_bestbosses08_Richard-D-Fairbank_8Y TB.html ), Mr. Fairbank had an annual compensation of $73.17 million dollars. His 5-year compensation total was $379.57 million and his average 6-year compensation totaled $63.28 million.

I can't even imagine what a person would do with such an amount of money. I'm stymied by the audacity of Richard D. Fairbank's company to take this route to increasing his riches in the face of a global financial crisis.

I really don't know how to deal with, no less comprehend, Mr. Fairbank's company's disgustingly abusive change in terms for its credit card holders.

If anyone reading this blog has anything they'd like to write or say to Mr. Fairbank, here's how to contact Capital One (however, you're not likely to be afforded access to Mr. Fairbank--and he doesn't have people to handle such contact attempts for him as far as I could tell):

1680 Capital One Drive
McLean, VA 22102
Virginia
703-720-1000
703-205-1755

If you are able to get through to this rogue, please feel free to post a comment here about your conversation by clicking on the "envelope" icon below this post.

I need to go puke now...

[ copied--and copyrighted--from my blog at: http://www.personalpatriotism.blogspot.com ]
May 9, 2009 8:44 AM
Guest :
thats nice and dandy for this to begin in july of 2010, but what about the millions of american that have already had their interested increased to 26% for being 5 days late? what, lets just continue having the banks keep those consumer tied up over the barrel?
2 Comments
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