New Rule Could Limit Fees on Credit Cards

The Federal Reserve's new credit card rule could save you hundreds or even thousands of dollars.

Does it seem like there are new regulations for credit card companies every week lately? First there was the CARD Act which went into effect on February 22. Now the Federal Reserve has unveiled some new guidelines for credit card companies regarding fees and penalties. The new rules have not gone into effect yet, but here are some things you may want to know about the pending regulations.

What Is It?
The main idea behind the new rule is to restrict a credit card company’s abilities to charge an account holder penalty fees. One of the details is that the company will not be able to charge more than the actual amount of the cardholder’s violation. For instance, if you buy a bottle of soda which costs $1.50 at your local convenience store and that puts you $1.00 over your credit limit, the card company can only charge you a $1.00 penalty fee instead of the outrageous $39 that many of them currently charge for the same violation.

The new regulations are also designed to restrict card companies from charging inactivity fees for not using the account as well as restricting multiple fees and penalties for the same violation. Card companies will also be forced to re-evaluate the rates they charge each customer every six months so they can determine if the individual customer is eligible for a lower rate. If a customer is found eligible, the company must drop their rates within the next 30 days.

Why the Need for This Rule?
The Federal Reserve felt these new regulations were necessary to add on to the recent reform that Congress passed last year. The regulations which went into effect just a couple weeks ago did not go far enough, according to some officials. The Fed’s believe that some of the charges and penalties that credit card companies charge are unreasonable and disproportionate to the violation. But Congress did not determine what was “reasonable and proportional” to the actual violations so it was up to the Federal Reserve to iron those details out.

When Does It Take Effect?
These new regulations have not gone into effect yet because the Feds want to get public opinion before actually signing them into law. The public has 30 days to offer comments before the Feds actually make a rule. The tentative date for these new regulations to go into effect is August 22, 2010.

Although I am not a fan of “big government,” I like the rule of restricting charges of nearly $40 for going over the credit limit by just a couple dollars. That couple dollars can set off a snowball of charges and penalties that could result in hundreds of dollars for a small mistake. Besides the credit card companies, I cannot think of anyone who would disagree with these new regulations.

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