Last Tuesday, the Federal Reserve released a 1,555 page set of rules which tells banks how they can comply with the new regulations of the Credit CARD Act. The new rules will become effective on February 22. In cases where laws of the Credit CARD Act were not very clear, regulators from the Fed used their own discretion to extend more protection to consumers or credit card users.
Consumer advocates were quite impressed with a few of the rules that the Federal Government issued. For instance, the Fed took some steps to handle a well known loop hole banks were using which allowed them to rate hikes much more freely even with the new law in place; as long as they used variable interest rates with their credit cards. Variable rate credit cards have their interest rates tied to a particular financial indicator which is usually the prime rate which goes up and down depending on how the United States economy is doing.
What the Fed did was to take away the “floors” that many banks were imposing. “Floors” are minimum interest rates banks place on their variable rate interest rates or charges. Banks insist that “floors” are necessary because they can be used to account for the risks in credit card lending. Consumer groups argue that imposing a minimum interest rate would defeat the purpose of this law which is to allow interest rates to go up or down depending on prime rate fluctuations. The Fed decided to go with what consumers advocated, thus, “floors” will no longer be implemented come February 22.
Another major win for consumers is the new opt in ruling for credit card programs that allow consumers to go over their credit limits for a fee. When enrolled in such a program, consumers may get regularly charged every month for overcharge fees that they may not notice immediately. Once February 22 rolls in, banks will no longer be enrolling consumers or card holders to such programs automatically. Consumers will have to specifically opt in to this program.
Consumer groups are considering the new Fed rulings to be a major, unexpected win for them. For banks, this new ruling represents a major revenue loss as overcharge fees are one of the big revenue makers for them. With the new rules, banks will no longer be able to charge consumers or credit card holders overcharge fees even in cases where they make an error and allow a card holder to go over his or her credit limits accidentally.