Fed proposes new credit card rules

The Federal Reserve Board proposed rules to protect credit card users from a number of potentially costly practices that are employed by some credit card companies. The amended rules, announced on September 29th, would amend Regulation Z, the Truth In Lending provisions in the law regulating the credit card industry.

Some of the key provisions ensure:

• Interest rate on a new credit card won't change during the first year after an account is opened
• Interest rate on an  existing credit card balance won't change until it is paid off
• A credit card is not issued to a person under 21, unless that person can make the required payments or has a cosigner who can make the required payment
• The credit card owner's consent is gotten before charging fees for exceeding the credit limit
• A limit on high fees associated with subprime credit cards
• Credit card companies cannot use the "two-cycle" billing method to calculate interest
• Payments are not allocated in a way that increases or maximizes credit card interest charges

This is the second stage of Credit Card Act, approved in May 2009. The proposed rule is now open for comments and is part of the provisions that go into effect on February 22, 2010.

"This proposal is another step forward in the Federal Reserve's efforts to ensure that consumers who rely on credit cards are treated fairly," said Federal Reserve Governor Elizabeth A. Duke. "The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts."