Credit cards are becoming more necessary in daily life. Online shopping requires either a credit card or Paypal. Most gas station expect pre-payment or credit/debit card payment. Credit cards can offer consumer protection and peace of mind in emergencies, but they are also dangerously easy to use. The new Federal Reserve Board rules should make the responsibilities of credit easier to understand for new credit card users, such as young adults with their first credit cards.
The Federal Reserve issued a press release with details of the changes, and here are some highlights from the new Regulation AA amendments, Regulation DD amendments, and Regulation Z amendments. The Federal Reserve Board also included proposed regulations for Electronic Fund Transfers (Regulation E). The Federal Reserve Board has made a comprehensive statement available, and the quoted regulations in this article are from Rules Regarding Credit Card Accounts and Overdraft Services of December 18, 2008.
Regulation AA Amendments
Regulation AA focuses on unfair and deceptive practices. These amendments are designed to add more protection for credit card users.
Changes in Payment Allocation
Banks must allow "a reasonable amount of time" for customers to make credit card payments. After payments are accepted, the bank will have rules on how the payment is applied. If a customer has different interest rates on balances, the bank must apply payments (beyond the minimum) in one of two ways:
- apply the payment to the balance with the highest rate or
- apply the payment proportionally across all balances
Interest Rate Rule Changes
Banks will have to stick with the interest rates that were established when the customer opened the credit account, except under the following circumstances:
- the bank stated the rate would expire at a certain date (such as a promotional rate), or
- the account is a variable rate account (which means the customer applied for an account knowing that the rate would change according to the index), or
- after one year, the bank gives customers 45 days notice of rate changes, or
- the customer is late with a payment by "more than 30 days after the due date".
Changes in Billing and Fees
"Two-Cycle" (also known as "Dual Cycle") billing will no longer be allowed. This technique enables billing offices to charge interest on balances that were part of the previous month's balance, even if the balance was paid in full.
Security deposits and fees will be more regulated and limited. Customers will have fees limited to 25% of the initial credit limit and "additional amounts (up to 50 percent) will be spread evenly".
Regulation DD Amendments
Regulation DD focuses on the Truth in Savings Act of 1991. The new changes will provide bank customers with more clarity with their overdraft protection. Banks will have to be more clear with their communications about fees, and automated banking information will have to differentiate balances.
For example, when a customer calls an automatic bank line for balance information, the bank will provide the account balance without including the potential overdraft. If a consumer has $1000 in an account and a $300 overdraft, the balance will be stated as $1000, not $1300.
Regulation Z Amendments
The Federal Reserve Board also amended Regulation Z, which was born from the Truth In Lending Act of 1968. In addition to already established consumer protections, banks will make credit card applications and statements easier for their customers to understand. Changes will include:
- specific guidelines for fonts
- rules for how information is presented on the page
- itemized interest rates
- monthly and year-to-date totals for both fees and interest charges
Regulation DD changes, the overdraft protection changes, will be effective as of January 1, 2010. Regulation AA and Regulation Z changes, the credit card protections, will be effective as of July 1, 2010.
Alex Sharp - Alex Sharp is a teacher who has been keeping Suite101 readers up to date with the latest in audio- and e-book gadgetry since 2008.
