- The Washington Times - Wednesday, September 30, 2009

The U.S. Federal Reserve proposed rules Tuesday that will end banks’ ability to apply credit-card payments to balances with the lowest interest rates first, implementing legislation Congress passed in May.

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

“The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit-card accounts,” Federal Reserve Governor Elizabeth Duke said in the statement.

President Obama signed the credit-card legislation in May, describing its provisions as “common-sense reforms” that would “protect consumers.”

The Fed’s proposal generally prohibits rate increases on fixed-rate accounts in the first year after an account is opened, as well as increases on existing credit-card balances. For consumers under the age of 21, cards can’t be issued unless the borrower can show an ability to repay the debt or an older person agrees to back the account.

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

The law is being implemented in three stages. Tuesday’s rules will take effect Feb. 22. The first parts of the law, giving consumers the right to reject rate increases within 45 days and pay off balances at the current rate, took effect Aug. 20. Companies also began mailing bills 21 days before the due date, up from 14 previously. Remaining provisions are scheduled to go into effect Aug. 22, 2010.

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