Federal Reserve approves final rule on credit cards

The Federal Reserve Board approved on Tuesday a final rule to protect credit card users from several types of unreasonable late fees and penalties. 

The changes, which go into effect Aug. 22, prohibit credit card issuers from charging a fee of more than $25 for paying late or for violating an account's terms unless there have been repeated violations or the issuer can show that a higher fee is needed to pay for the costs of those violations. 

"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," Federal Reserve Governor Elizabeth Duke said in a statement Tuesday.

The new rule also prohibits card issuers from charging fees that exceed the amount of the consumer's violation. For example, card issuers can't charge a $39 late fee when a consumer is late making a $20 minimum payment. The fee can't exceed $20. 

Inactivity fees, such as not making new purchases, are banned under the rule. Issuers also are prevented from charging multiple penalty fees based on a single late payment or other violation of the account terms. 

The rule also requires issuers that have increased rates since Jan. 1, 2009. to evaluate whether the reason for the increase has changed and, if appropriate, to reduce the rate. 

Approving the final rule represents the third stage of the Fed's implementation of the Credit Card Accountability Responsibility and Disclosure Act, enacted in May 2009.