The change in regulation is related to the Credit Card Accountability, Responsibility and Disclosure Act, much of which takes effect on February 22. The requirements released by the Fed relate to the new guidelines that take effect on that date.
“The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card account,” Elizabeth Duke, the Fed’s governor, said.
In most cases, companies that issue credit cards will no longer be able to increase interest rates during the first year that an account is open. They generally will not be allowed to increase rates that affect existing credit card debt.
Younger people will also be affected by the new Fed rule. Anyone who is under 21 will not be able to get a credit card debt account unless they can either prove they have the means to afford payments or get a cosigner for the card.
Through the regulations, those that issue credit will also have to get the consent of their customers prior to charging fees associated with transactions that go over a credit limit. Companies will also not be allowed to structure transactions in such a way that maximizes charges on interest.
Though the rules are intended to help consumers, many card companies have tried to change account terms in anticipation of them. For example, some companies are switching consumers to variable rate cards while also setting a minimum interest rate. Others have closed accounts while also limiting which consumers they approve for new credit cards.
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