Yesterday, the Federal Reserve Board (Board) published a proposed rule amending Regulation Z to implement the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) effective August 22, 2010. These rules are the beginning of the last of three phases of rulemakings under the CARD Act. The first two phases have been finalized. See, e.g., 75 Fed. Reg. 7658 (Feb. 22, 2010) (finalizing rules implementing CARD Act provisions effective August 20, 2009 and February 22, 2010) and Alerts dated January 12, 2010 and July 16, 2009.

    The proposed rule published yesterday implements CARD Act Sections 101(c) (the interest rate “look back” and decrease requirement) and 102(b) (regarding “reasonable and proportional” penalty fees), which become effective August 22, 2010.

    Interest Rate “Look Back”

    The Board proposes to implement the interest rate “look back” and decrease requirement in new Section 226.59 of Regulation Z, which generally would require an issuer that increased an annual percentage rate on a not home-secured credit card account on or after January 1, 2009 to (i) evaluate at least every six months whether the factors prompting the increase have changed and (ii) reduce the APR applicable to the consumer’s account, as appropriate, not later than 30 days after completion of the evaluation.

    Penalty Fees

    The Board proposes to implement the limitations on penalty fees in a new Section 226.52(b) of Regulation Z, which generally would prohibit card issuers from imposing any fee for violating the terms of a not-home secured credit card account unless the fee amount is based on a determination that the fee (i) represents a reasonable proportion of the total costs incurred by the issuer as a result of that type of violation or (ii) is reasonably necessary to deter that type of violation. Section 226.52(b) also would prohibit:

    • Fees exceeding the dollar amount associated with the violation;
    • Fees for a violation with no associated dollar amount (including fees for declined transactions and account inactivity, closure or termination); and
    • Multiple fees based on a single event or transaction.

    Although the CARD Act authorized the Board to establish a “safe harbor” fee amount, the Board declined to propose an exact dollar amount due to insufficient data. The Board requests data regarding costs incurred as a result of violations and the deterrent effect of different fee amounts on violations.

    Other Proposed Changes

    The proposed rule also would add and revise model forms and revise existing rules regarding, inter alia:

    • Bolding of maximum fee amounts in application and solicitation and account-opening tables;
    • Disclosure of late payment fees “up to” a maximum amount on periodic statements; and
    • Content of change-in-terms or penalty rate notices when rates are increased.

    The Board invites comment on the proposed rule, and on a few issues in particular, on or before 30 days after publication in the Federal Register, which is expected shortly.

    Contact us for more information on the proposed rule.

    • Judy Scheiderer