Effective this summer, a third series of provisions under the Credit Card Accountability, Responsibility and Disclosure Act of 2009 will add to protections already extended under the law.
The Federal Reserve Board recently proposed rules amending Regulation Z (Truth in Lending) to prohibit issuers from issuing late or overdraft fees that are proportionate to the dollar amount of the violation. For example, if a consumer fails to make a $20 minimum payment, they could not be charged a $39 late fee. The same would go for overdraft fees.
"A consumer who exceeds the credit limit by $5 should not be penalized to the same degree as a consumer who exceeds the limit by $500," the proposal said.
Fee size would also reflect the frequency of such incidents performed by the consumer. Lenders could charge higher fees for repeat violations than they did for the first offense. They must also determine that such fees would deter such actions.
Late payments will continue to affect a consumer's credit score and remain on their credit history for seven years. This payment history typically accounts for 35 percent of a consumer's score and will be weighed against other factors, such as total debts.
The proposal would also take action against activity fees. These are charged when consumers do not use an account for a significant period of time.
The Credit CARD Act requires that lenders give a 45 days' advance notice before increasing interest rates, fees or terms. Several issuers responded to the law by increasing interest rates and introducing new fees.
The central bank's recent proposal would require that lenders review these rate hikes and determine whether they are reasonable. They must also explain such increases to their customers.
"The rule would prevent credit card issuers from charging large penalty fees for small missteps by consumers and would require issuers to reevaluate rate increases imposed since the beginning of last year," said Fed governor Elizabeth Duke.
Earlier provisions under the Credit CARD Act regulates billing schedules and requires that lenders include a timetable on monthly bills showing consumers how long it would take to pay off their balance if they only made minimum payments.