Final Credit Card Act Rules Released

Late Tuesday morning, June 15, the Federal Reserve Board published the final rules implementing the third (and last) phase of the Credit CARD Act.  The rules are effective on August 22, 2010, and will require that penalty fees be reasonable and proportional, rate increases be explained, and credit unions will need to re-evaluate rate increases periodically.

Penalty fees
Under the new regulation, penalty fees (such as late payment and over limit) are generally capped at $25, but they also cannot exceed the amount of the violation of the account agreement.  So, if your member misses a $15 late payment, the largest fee that can be charged is $15.  If your member goes $50 over limit, a $25 fee can be assessed.

You may also charge a higher penalty fee in certain circumstances.  First, you may charge up to $35 for two (or more) incidents of the same behavior over 6 months.  So, while you can only charge $25 for the first late payment, you can charge $35 for the second.  But, the violation of the account must be of the same type both times.  An over limit charge does not trigger higher late payment fees.  Your credit union could also increase the fee charged if you determine through study that violation in question costs you more than the $25 per incident laid out by the FRB.

Lastly, credit unions can only charge one fee per incident.  So, if your member makes a payment with a bad check, you can only charge the bad check fee OR the late payment fee, not both.

Notice of Rate Increase
If your credit union is increasing the interest rate on a card you’ll need to provide notice of that change at least 45 days in advance.  The notice must have information about which balances the new rate will apply to and reasons for the increase.  The reasons must be stated clearly and there can be no more than four factors on the notice. 

Reviewing Rate Increases
According to these new rules, your credit union will need to review any rate increases (other than penalty rate increases) you implemented on or after January 1, 2009 every 6 months.  The review must consider the factors originally used to justify the rate increase, or the factors currently used to determine rates on new credit card plans.  If the review indicates that the rate can be reduced, your credit union must reduce the rate within 45 days of completing the review.  The new, reduced, rate will apply to both outstanding balances and new transactions.

The rules are available to read for yourself on the Federal Reserve Board’s website and the League will be publishing a more detailed compliance update in the coming days.

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