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Credit Card Rules Go into Effect February 22

The Federal Reserve Board on Tuesday approved a final rule amending Regulation Z (Truth in Lending) to protect consumers who use credit cards from a number of costly practices. credit card issuers must comply with most aspects of the rule beginning on February 22, 2010.

"This rule marks an important milestone 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."

Have you been bombarded with letters from card issuers about rate increases or change of your credit terms over the past few months? Or have you received phone calls from issuers asking you if you want to "opt in" to be allowed to exceed your credit limit and be charged over-limit fees?

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 was signed into law by President Obama in May 2009, and card issuers have been scrambling to make changes to accounts before the new credit card laws go into effect.

While the bill was widely supported by consumer advocates and both parties in Congress, the banking industry has said that the CARD Act will result in reduced rewards and benefits and increased costs across-the-board for cardholders.

Even those with "good" to "excellent" credit are likely to find their credit limits reduced and their interest rates raised. Card issuers will soon be limited in how they can recoup the losses associated with lending to risky borrowers. If issuers can't price for that risk, they will have to spread the cost around the general pool of cardholders.

But with these new rules that go into effect next month, consumers will know what to expect from their card issuers and have an easier time understanding the terms of their accounts. The new law ends confusing billing practices that cost the cardholder higher interest charges, gives consumers more protections from rate increases, restricts fees that can be charged for subprime cards, and requires credit card applications under 21 years to either prove their ability to make payments or obtain a co-signer.

“These rules – the most comprehensive ever seen – herald a new era for America’s credit card customers,” said Kenneth J. Clayton, American Bankers Association (ABA) Senior Vice President and General Counsel for ABA Card Policy. “Many practices that frustrated customers have been eliminated, and credit card users will now benefit from greater control and clearer terms for their accounts."

“This February’s improvements mark the most important step in the comprehensive reform of the credit card industry,” said Clayton. “They put consumers squarely in the driver’s seat by restricting fees and requiring clearer rules and improved disclosures. The bottom line is this: the credit card industry is changing and these new rules will help empower consumers to take control of their personal finances."

Next articles will give greater detail on changes you can expect from your card issuers when most rules take effect February 22.

Federal Reserve Board
American Bankers Association
Credit Card Rules Part 1 - Cardholder Notification
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Tuesday, 14 July 2020

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