The Federal Reserve adopted new rules Tuesday barring credit card companies from charging a penalty fee of more than $25 for paying a late bill. The rules, which take effect Aug. 22, also prohibit the companies from charging penalties that exceed the dollar amount associated with the customer's violation.
The rules also ban "inactivity" fees charged when customers don't use the account for new purchases. The rules are a response to public and congressional outrage over practices by credit card companies.
In addition, the rules require companies to reconsider interest rates imposed on customers since the start of last year. Some lenders pushed through rate increases ahead of the first phase of sweeping new credit-card protections, which took effect earlier this year. Those first set of rules were designed to protect customers from sudden hikes in interest rates.
Congress directed the Fed to implement the new credit card protections in legislation signed into law by President Barack Obama last year.
"The new rules require that late payment and other penalty fees be assessed in a way that is fairer and generally less costly for consumers," said Fed Governor Elizabeth Duke, the central bank's point person on the rules. "Card issuers must also reevaluate recent interest rate increases, and, if appropriate, reduce the rate," she added.
Legislation in Congress revamping the nation's financial regulatory structure could reduce the Fed's influence over consumer protections. A Senate-passed bill would house a watchdog agency inside the Fed, but chairman Ben Bernanke would have no authority over it.
A House-passed bill would set up a new agency devoted to consumer protection and would strip the Fed of some of its consumer oversight. Lawmakers are working to reconcile the bills into a final package.