Are Fed's New Credit Card Rules Too Little, Too Late?

Includes: AXP, MA, V
by: Wall St. Cheat Sheet

In past posts I have gone through the mandated role of the Federal Reserve to show they clearly are not doing their jobs. On Wednesday, the Fed amended the Truth in Lending regulation “to protect credit card users from unreasonable late payment and other penalty fees and to require credit card issuers to reconsider increases in interest rates.”

Is it me, or were these practices horrible for a long time before now? Apparently, the Fed is taking a little baby step to fulfill their duty to to protect the credit rights of consumers.

Federal Reserve Governor Elizabeth A. Duke says, “The rule would prevent credit card issuers from charging large penalty fees for small missteps by consumers and would require issuers to reevaluate rate increases imposed since the beginning of last year.” Welcome to planet Earth, Elizabeth. Thanks for helping with the $39 penalties on a $20 statement.

Here are some of the Johnny-come-lately steps the Fed is taking long after the credit bubble:

  • Prohibit credit card issuers from charging penalty fees (including late payment fees and fees for exceeding the credit limit) that exceed the dollar amount associated with the consumer’s violation of the account terms. For example, card issuers would no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee could not exceed $20.
  • Ban inactivity fees, such as fees based on the consumer’s failure to use the account to make new purchases.
  • Prevent issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
  • Require credit card issuers to inform consumers of the reasons for increases in rates.
  • Require issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.

Once again, the Fed shows they are a step behind the curve.

Disclosure: no positions