Statement of Center For Responsible Lending President Michael D.Calhoun regarding Federal Reserve Board Rules on Credit Card Penalty Fees
The Federal Reserve Board today issued rules that significantly limit the penalty fees that credit card companies can charge, but didn't go far enough to curtail widespread abuse in this area. Our recent report shows that card issuers are charging late fees that are unrelated to issuer losses but instead are just another way to raise costs for credit card customers.
Under the new rules—the third and final set implementing the Credit CARD Act of 2009—card issuers can charge no more than $25 the first time a customer has a check returned, makes a payment late or goes over a credit limit. And the penalty fee cannot exceed the amount involved in the violation. That means, for example, that a penalty fee for exceeding a credit card limit by $10 typically can be no more than $10.
Firms can exceed the $25 limit, but only if they can show the costs they incur from a violation justifies it.
The new rules also ban inactivity fees.
These rules are an improvement over the $39 penalty fee top credit card issuers routinely charge, but they could and should have been stronger. The $25 limit is too high, and firms will have considerable leeway in justifying even higher amounts. Fed rulemakers also failed to limit interest-rate increases imposed as a penalty. And they made it easy for firms to make all rate hikes permanent, whether imposed as a penalty or not. That undermines a key CARD Act provision requiring firms to review rate increases every six months.
The actions today are another example of why the consumer financial protection agency that Congress is almost finished crafting is so important.
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