The final rules prohibiting certain credit card Practices
were adopted under the Federal Trade Commission Act, and are
being issued concurrently with substantially similar final rules
by the Federal Reserve Board, the Office of Thrift Supervision and the National Credit
Union Administration. Among other things, the rules will:
- Protect consumers from unexpected interest charges,
including increases in the rate during the first year after
account opening and increases in the rate charged on
pre-existing credit card balances;
- Forbid banks from imposing interest charges using the
"two-cycle" billing method;
- Require that consumers receive a reasonable amount of
time to make their credit card payments;
- Prohibit the use of payment allocation methods that
unfairly maximize interest charges;
- Address subprime credit cards by limiting the fees that
reduce the amount of available credit.
Highlights of Final Rules Regarding Credit Card Accounts
from the Federal Reserve Board.
Regulation AA (Unfair Acts or Practices) Final Rule
The final rule amends Regulation AA to prohibit unfair or
deceptive acts or Practices by banks in connection with credit
card accounts. The effective date for the Regulation AA
amendments is July 1, 2010.
- Time to Make Payments. The final rule prohibits banks
from treating a payment as late for any purpose unless the
bank provides a reasonable amount of time for the consumer
to make that payment. The rule provides a safe harbor for
banks that send periodic statements at least 21 days prior
to the payment due date.
- Allocation of Payments. When different annual percentage
rates (APRs) apply to different balanceson a credit card
account (for example, purchases, balance transfers, cash
advances), the final rule requires banks to allocate
payments exceeding the minimum payment to the balance with
the highest rate first or pro rata among all of the
- Increasing Interest Rates. The final rule requires banks
to disclose at account opening all interest rates that will
apply to the account and prohibits increases in those rates,
except in certain circumstances. First, if a rate disclosed
at account opening expires after a specified period of time,
banks may apply an increased rate that was also disclosed at
account opening. Second, banks may increase a rate due to
the operation of an index (in other words, the rate is a
variable rate). Third, after the first year, banks may
increase a rate for new transactions only after complying
with the 45-day advance notice requirement in Regulation Z.
Fourth, banks may increase a rate if the minimum payment is
received more than 30 days after the due date.
- Two-Cycle Billing. The final rule prohibits banks from
calculating interest using a method referred to as
"two-cycle billing." Under this method, when a consumer pays
the entire account balance one month, but does not do so the
following month, the bank calculates interest for the second
month using the account balance for days in the previous
billing cycle as well as the current cycle.
- Financing of Security Deposits and Fees. The final rule
addresses concerns regarding subprime credit cards with high
fees and low credit limits. Banks would be prohibited from
financing security deposits and fees for credit availability
(such as account-opening fees or membership fees) if charges
assessed during the first 12 months would exceed 50 percent
of the initial credit limit. The rule also limits the
security deposits and fees charged at account opening to 25
percent of the initial credit limit and requires any
additional amounts (up to 50 percent) to be spread evenly
over at least the next five billing cycles.
Regulation Z (Truth in Lending) Final Rule
The final rule amends Regulation Z to improve the effectiveness
of the disclosures consumers receive in connection with credit
card accounts and other revolving (non home-secured) credit
plans. The effective date for the Regulation Z amendments is
July 1, 2010.
- Applications and solicitations. The final rule contains
format and content changes to make the credit and charge
card application and solicitation disclosures more
meaningful and easier for consumers to use. These
disclosures are provided in the form of a table that
summarizes the key account terms. The changes include:
- Format Revisions. New format requirements for the
summary table include rules regarding type size, the use
of boldface type for certain key terms, and the
placement of information.
- Content Revisions. Creditors must disclose the
duration that penalty rates may be in effect, simplify
disclosures about variable rates and revise disclosures
regarding when a grace period is offered on purchases or
when no grace period is offered.
- Account-opening disclosures. The final rule enhances the
cost disclosures provided at account opening to make the
information more conspicuous and easier to read. Certain key
terms must be disclosed in a summary table at account
opening, which is substantially similar to the table
required for credit and charge card applications and
- Periodic statement disclosures. The final rule contains
revisions to make disclosures on periodic statements more
understandable, primarily by making changes to the format
requirements, such as by grouping fees and interest charges
together. The changes include:
- Interest Charges and Fees. Interest charges and fees
must be grouped separately, with a monthly total for
each. Interest charges must be itemized according to the
type of transaction (such as interest charged on
purchases, and interest charged on cash advances).
Separate year-to-date totals for fees and interest
charges are also required.
- Effective APR. The requirement to disclose an
"effective annual percentage rate" is eliminated due to
the lack of consumer understanding of this term. New
requirements to disclose interest and fee totals for the
month and year-to-date should more effectively inform
consumers of the total cost of credit.
- Minimum Payment Disclosure. The effect of making
only the minimum required payment on the time to repay
balancesmust be disclosed, as required by the
Bankruptcy Abuse Prevention and Consumer Protection Act
- Changes in consumer's interest rate and other account
terms. The final rule expands the circumstances under which
consumers receive written notice of changes in the account
terms (such as, an increase in the interest rate), and
increases the amount of time these notices must be sent
before the change becomes effective. The changes include:
- Increase in Advance Notice for Changes in Terms. The
final rule increases the amount of advance notice before
a changed term can be imposed from 15 to 45 days to
better allow consumers to obtain alternative financing
or change their account usage.
- Requiring Prior Notice for Penalty Rate Increases.
Creditors must provide 45 days' prior notice before the
creditor increases a rate due to the consumer's
delinquency or default or as a penalty.
- Summary Table. When a change-in-terms or
penalty-rate notice accompanies a periodic statement,
the final rule requires creditors to provide a tabular
disclosure on the front side of the periodic statement
showing the key terms being changed.
- Additional protections. The final rule includes the
following additional protections for consumers:
- "Fixed" Rates. Advertisements may refer to a rate as
"fixed" only if a time period is specified for which the
rate is fixed and the rate will not increase for any
reason during that time, or if a time period is not
specified, if the rate will not increase for any reason
while the plan is open.
- Cut-off Times and Due Dates for Mailed Payments.
Creditors must set reasonable cut-off hours for mailed
payments to be considered timely on the due date. The
final rule deems 5 p.m. to be a reasonable time. When
mailed payments are not accepted on the due date, such
as on weekends or holidays, creditors must consider a
payment received on the next business day as timely.
Highlights of Rules Regarding Overdraft Services
Regulation DD (Truth in Savings) Final Rule
The final rule amends Regulation DD to address depository
institutions' disclosure Practices related to overdrafts. The
effective date for the Regulation DD amendments is January 1,
- Disclosure of Aggregate Overdraft Fees. The final rule
extends to all institutions the requirement to disclose on
periodic statements the aggregate dollar amounts charged for
overdraft fees and for returned item fees (for the statement
period and the year-to-date). Currently, only institutions
that promote or advertise the payment of overdrafts must
disclose aggregate amounts.
- Disclosure of Balance Information. The final rule
requires institutions that provide account balance
information through an automated system to provide a balance
that does not include additional funds that may be made
available to cover overdrafts.
Regulation E (Electronic Fund Transfers) Proposed Rule
The proposal amends Regulation E to provide consumers certain
protections relating to the assessment of overdraft fees. The
proposal replacespreviously proposed amendments under
Regulations AA and DD addressing overdraft services.
- Consumer Choice Regarding Overdraft Services. The
proposal solicits comment on two approaches to providing
consumers a choice regarding the payment of ATM and one-time
debit card overdrafts by their financial institution.
- Opt-out: Under one approach, an institution would be
prohibited from imposing an overdraft fee unless the
consumer is given an initial notice and a reasonable
opportunity to opt out of the institution's overdraft
service, and the consumer does not opt out.
- Opt-in: The second approach would prohibit an
institution from imposing an overdraft fee for paying
such overdrafts unless the consumer affirmatively
consents (or opts in) to the institution's overdraft
- Debit Holds. The proposal would prohibit institutions
from imposing an overdraft fee when the account is overdrawn
because of a hold placed on funds in the consumer's account
that exceeds the actual transaction amount. The proposed
rule is limited to debit card transactions in which the
actual transaction amount generally can be determined within
a short period of time after the transaction is authorized
(for example, transactions at gas stations and restaurants).
About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation). The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely.
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.
The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org). CASDRAP disbanded in 2010, shortly after the web site project was completed. In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.
The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.
Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org. Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G, a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.