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Managing Your Money

Credit card rules aren’t final yet, so speak up

By Michelle Singletary
Washington Post / March 18, 2010

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In what feels like never-ending regulatory fiddling with the Credit Card Accountability Responsibility and Disclosure Act of 2009, the Federal Reserve now wants to know what consumers think about certain fees lenders charge as penalties for late payments or other issues.

To be fair, the Fed is only following Congress’s mandate that the CARD Act be implemented in three phases. The first went into effect last summer, the second in January. This final phase will take effect this summer.

The Fed has proposed amending Regulation Z, the truth-in-lending provision. In addition to penalty fees, the rules would require credit card issuers to reconsider increases in interest rates. Here’s a summary of the specific proposals:

■ Card issuers would be prohibited from imposing penalties that exceed the dollar amount of an infraction. For example, let’s say you are late making a $25 minimum payment on your credit card bill. The lender could not charge you a fee that is more than the amount that’s overdue.

The idea is that these types of fees should be reasonable and proportional to the violation. I suspect companies may get around this by increasing the minimum payments, which they are allowed to do, with proper notification.

Because the law allows companies to recover the collection cost of servicing accounts, the proposed rule would require card issuers to reevaluate those expenses at least annually to ensure that penalty fees are based on relatively current cost information.

■ Companies would not be allowed to impose an inactivity fee on customers who fail to use their cards to make new purchases. I’ve heard from people who have gotten notices of fees for cards they have not used in years.

■ Issuers could not charge multiple fees based on a single late payment or other violation. For instance, if you are late paying your bill, the company couldn’t keep charging you a late fee for that one incident.

■ A credit card lender would have to cite specific reasons for raising an interest rate.

■ If your rate has increased since Jan. 1, the issuer would have to evaluate your account at some point. And if the reason your rate was increased is no longer an issue, it would have to be reduced.

If you want to comment on the proposed rules, send an e-mail to regs.comments@federalreserve.gov. Include “Docket No. R-1384’’ in the subject line. Comments must be received on or before April 14.

Consumers Union urges people to send comments to the Fed. It provides a template letter for people to personalize. The nonprofit recommends the Fed impose a cap to prevent banks from finding ways to continue charging high fees.

“It is critical the board issue the strongest rules possible to protect consumers, since the banks continually come up with new ways to get around the consumer-protection laws,’’ wrote one person. “I urge you to give me the protections I was promised.’’

Another poster wondered: “Why don’t you just socialize the entire credit card industry? You keep adding regulations . . . on top of regulations, do you not understand that these costs will eventually, somehow be passed onto the consumers?’’

Another: “This is another set of meaningless rules . . . that will not affect the banks or their extreme practices whatsoever.’’

I disagree with the last comment. The old rule was essentially “Gouge people at will.’’

Michelle Singletary writes The Color of Money column for The Washington Post