Tuesday, June 15, 2010
New Rules Offer Important Safeguards to Limit Penalty Fees But Don’t Go Far Enough to Roll Back Unfair Interest Rate Hikes
WASHINGTON, D.C. – The Federal Reserve Board issued new regulations today that offer important protections for consumers, including limiting the size of penalty fees that banks can charge credit card customers. The new rules also require banks to periodically re-evaluate interest rate hikes to see if higher rates are still justified.
But the new rules are unlikely to offer much relief to consumers who have been hit by the wave of interest rate hikes in recent years, according to Consumers Union, the nonprofit publisher of Consumer Reports.
“The Fed should be commended for prohibiting inactivity fees and imposing some clear limits on penalty fees when customers are late making their payments,” said Gail Hillebrand, Director of Consumers Union’s Defend Your Dollars campaign (www.DefendYourDollars.org). “These new protections will help put an end to excessive fees that unfairly penalize consumers. But the Fed missed an opportunity to require a rollback of all the outrageous interest rate hikes consumers have been slammed with in recent years.”
Under the new regulations which go into effect on August 22, banks will no longer be allowed to charge customers a fee for not using their card and cannot charge a late payment fee that is larger than the customer’s minimum payment. Banks cannot charge a late fee higher than $25 unless one of the customer’s last six payments has been late or if the bank can show that the costs associated with the late payment justify a higher fee. The $25 “safe harbor fee” is higher than the $10 fee limit that Consumers Union had urged the Fed to adopt.
The new rules also require banks to give customers a reason when credit card interest rates are raised. Banks are also required to re-evaluate whether interest rate hikes are still justified six months after the higher rate is applied. The first rate review must be conducted prior to February 22, 2011. Consumers Union called on banks to start the rate review process immediately.
David Butler or Kristina Edmunson – 202-462-6262 or Michael McCauley – 415-902-9537 (cell)