The U.S. Federal Reserve (Fed) Board on Tuesday proposed new rules to protect consumers who use credit cards from a number of potentially costly practices.
"This proposal is another step forward in the Federal Reserve's efforts to ensure that consumers who rely on credit cards are treated fairly," said Federal Reserve Governor Elizabeth A. Duke. "The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts."
The proposal, issued for public comment, represents part of the Fed's implementation of the Credit Card Act, which was signed into law by President Barack Obama in May.
Among other things, the proposed rule would protect consumers from unexpected increases in credit card interest rates by generally prohibiting increases in a rate during the first year after an account is opened and increases in a rate that applies to an existing credit card balance.
It will prohibit creditors from issuing a credit card to a consumer who is under the age of 21 unless the consumer has the ability to make the required payments or obtains the signature of a parent or other cosigner with the ability to do so.
The proposal will require creditors to obtain a consumer's consent before charging fees for transactions that exceed the credit limit. It limits the high fees associated with subprime credit cards.
The new rules will also ban creditors from using the "two-cycle" billing method to impose interest charges and prohibit creditors from allocating payments in ways that maximize interest charges.