New Federal Reserve regulations issued pursuant to the Credit CARD Act of 2009 and effective as of February 22 protect borrowers from deceptive and abusive credit card practices. Some regulations went into effect in August of 2009, and the remaining regulations will be implemented in August 2010.
The new regulations protect against unexpected fixed interest rate increases by preventing increases for one year after an account is opened; after that, the borrower must receive 45 days of notice before an increase. Credit card issuers will, for the most part, no longer be able to apply increased interest rates to existing balances. In a move critical to ending the cycle of debt, issuers must now consider a borrower’s ability to make the required payments before opening a new account or extending a credit limit. Issuers are prohibited from approving over-the-limit transactions and charging fees on those transactions, unless the customer opts in to this program. Card issuers are limited to one over-the-limit fee per billing cycle. The new regulations help borrowers pay down their highest-cost debt faster by applying payments to accounts with the highest interest rates first.
Young people, who are targets of intense on-campus marketing by credit card issuers and often graduate with a significant debt load, are granted special protections. Borrowers under 21 must provide proof of ability to pay or have a cosigner over the age of 21. On-campus card recruiters are prohibited from requiring prospective borrowers to fill out an application in order to get a free prize. Finally, colleges must disclose any relationships they have with credit card issuers.
The protections in these new regulations are vital to protecting consumers from abusive credit card terms and helping them make sound financial decisions—anyone who has signed a credit card contract knows how daunting the pages of fine print are. Consumer protection rules like these need a strong and independent enforcer with consumers’ interests as a top priority in order to be effective. The proposed Consumer Financial Protection Agency could not only play that role, but extend similar protections to all kinds of credit, including mortgages and payday loans.