The New York State Consumer Protection Board (CPB) is alerting consumers to new rules that took effect on Sunday, August 22 that will offer greater protection and additional rights to users of credit and gift cards.
The new Federal Reserve rules are the final implementation of the federal Credit Card Accountability, Responsibility and Disclosure Act (CARD), which was advocated for by Governor David A. Paterson and the CPB.
"For years, credit and gift card issuers have played ‘gotcha’ with consumers, hitting them with hidden fees and onerous terms and conditions," said Paterson. "The new rules will help level the playing field for consumers who use credit and gift cards."
No longer will consumers be subjected to certain unfair and punitive credit and gift card practices. Consumers are urged to stay vigilant to possible new tactics and fees as the CPB will continue its efforts to help ensure that consumers get a fair shake when they use their credit and gift cards.
Credit Cards
Effective August 22, credit card users will be shielded from unreasonable late payment and other penalty fees. Such fees must thereafter be "reasonable and proportional" to the consumer’s violation of the terms of the account. Further, credit card issuers will be required to review interest rate increases imposed since the beginning of last year.
In addition, the rules:
? Prohibit credit card issuers from charging a penalty fee of more than $25 (adjusted annually by the Federal Reserve Board according to the Consumer Price Index) for paying late or otherwise violating the terms of the account unless the consumer has engaged in repeated violations ($35 for an additional violation of the same type during the next six billing cycles) or the issuer can demonstrate that a higher fee represents a reasonable proportion of the costs its incurs as a result of violations.
? Prohibit credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer’s violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.
? Ban "inactivity" fees, such as fees based on the consumer’s failure to use the account to make new purchases, and other fees when there is no dollar amount associated with the violation.
? Prevent issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
? Require issuers that have increased interest rates since January 1, 2009, to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate no later than 45 days after completing the reevaluation. The evaluation occurs every six months.
The CPB advises consumers to check their billing statements carefully for the application of penalty fees and to ask questions of their credit card issuer if they see improper or excessive fees.
For a summary of credit cards reforms that took effect earlier this year as part of the CARD Act, see the CPB’s web site at www.nysconsumer.gov.
Gift Cards
New Federal Reserve rules restrict the fees and expiration dates that may apply to gift cards sold on or after August 22.
? Dormancy, inactivity and service fees may only be assessed for a gift card if
(1) the consumer has not used the card for at least one year;
(2) no more than one such fee is charged per month; and,
(3) the consumer is given clear and conspicuous disclosure about the fees. [Note: New York law already prohibited monthly fees for non-use of a card until the 13th month after purchasing.]
?Expiration dates for the funds on a gift card must be at least five years from the date of issuance, or five years from the date when funds were last loaded.
?The expiration date restrictions apply to the funds on a gift card, not to the card itself. ? However, no fee may be charged for replacing an expired card, or for refunding the remaining balance, if the underlying funds remain valid.
?The new rules apply to retail gift cards that can be used to buy goods or services at a single merchant or affiliated group of merchants, and network-branded gift cards.
For more information on purchasing and using gift cards, see the CPB’s Gift Card Tips at www.nysconsumer.gov.
Mindy A. Bockstein is the New York State Consumer Protection Board’s chairperson and executive director
