WASHINGTON (AP) — The Federal Reserve on Tuesday issued sweeping new rules to better protect Americans from sudden hikes in interest rates on credit cards.
The new rules, which take effect on Feb. 22, generally bar rate increases during the first year after an account is opened. After the first year, companies must provide customers with a 45-day notice before bumping up rates.
Some lenders have pushed through rate increases ahead of the new rules. That irked lawmakers in Congress who had wanted to speed up implementation of the Fed’s rules.
The new rules also will ban — with a few exceptions — increasing the rate on existing credit card balances. For instance, if a customer is behind more than 60 days on a payment, the rate on the existing balance can be boosted.
Credit card companies also will be required to obtain a customer’s consent before charging fees on transactions that exceed their credit limits and will forbid companies from issuing credit cards to people under the age of 21 unless they — or a parent or other co-signer — have the ability to make the required payments.
“These rules — the most comprehensive ever seen — herald a new era for America’s credit card customers,” said Kenneth Clayton, the American Bankers Association’s point person on the matter. “It really does put consumers in the driver’s seat,” he said.
Payments will be applied to highest interest-rate balances first, helping customers pay off their balances faster and more cheaply, he said. And, due dates will be the same every month, eliminating confusing cut-off times for payments, he added.
The Fed wrote the rules to carry out provisions of legislation passed by Congress and signed into law by President Barack Obama last year. Other provisions of that law are slated to go into effect later this year.