New Fed Rules: You Can’t Be Charged for Not Using Your Credit Card

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Last summer, while credit card companies were jacking up rates and adding fees in anticipation of new regulations that’d make it more difficult to part customers with their money, one of the most nonsensical charges to surface was the “inactivity” fee. In other words, a fee for not using your card — for not buying stuff. New rules from the Federal Reserve will ban such an absurd fee, and they’ll also put a cap of $25 on late fees.

The Fed’s new rules go into effect on August 22, 2010, with provisions that include:

• Prohibits credit card issuers from charging a penalty fee of more than $25 for paying late or otherwise violating the account’s terms unless the consumer has engaged in repeated violations or the issuer can show that a higher fee represents a reasonable proportion of the costs it incurs as a result of violations.

• Prohibits credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer’s violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.

• Bans “inactivity” fees, such as fees based on the consumer’s failure to use the account to make new purchases.

• Prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.

• Requires 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.

Note that nothing in the new rules mandates that credit card rates be reduced, and credit card issuers don’t have to justify their rate increases in any formal way. So that last item is pretty toothless.

Rates are expected to stay high, and consumers are understandably unhappy about that. Here, a quote getting right to the point in USA Today:

Consumer groups were disappointed that the Fed didn’t take a harder line with respect to the rate increases. “The Fed should be commended for prohibiting inactivity fees and imposing some clear limits on penalty fees when customers are late making their payments,” Gail Hillebrand, attorney for Consumers Union, said in a statement. “But the Fed missed an opportunity to require a rollback of all the outrageous interest rate hikes consumers have been slammed with in recent years.”

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