Fed decided to Institute Curbs On Issuers of Credit Cards

On Tuesday rules have been proposed by the Federal Reserve to end banks’ ability to apply credit card payments to balances having lowest interest rates first, implementing legislation Congress passed in May.

The Fed also proposed that before charging fees for transactions that exceed credit limits creditors obtain consumers’ consent. The Fed said in a statement that restrictions on lending to people under the age of 21 and subprime credit card fees were also included.

Rate increases on fixed-rate accounts

In the first year after an account is opened, the Fed’s proposal would generally prohibit rate increases on fixed-rate accounts as well as increases on existing credit card balances. Cards could not be issued for consumers under the age of 21, unless the borrower could show an ability to repay the debt or an older person agreed to back the account.

Description of the rules in the Federal Register

According to a description of the rules in the Federal Register, during the first year after the account is opened fees on subprime credit cards, those issued to consumers with lower credit scores, would be capped at 25 percent of the account’s credit limit.

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