The Obama administration heralded new rules protecting U.S. credit card holders from certain fees and rate increases on Monday, even as Connecticut's Attorney General criticized the Federal Reserve for not using the rules to reverse earlier card rate hikes.
The implementation of rules from the U.S. credit card act, signed into law in May, will help cardholders understand how much their credit cards cost to use, President Barack Obama and U.S. Treasury Secretary Timothy Geithner said in statements.
The rules restrict credit-card issuers such as Bank of America Corp and JPMorgan Chase & Co from raising rates on borrowers who are late with their payments. They also prevent card companies from charging over-limit fees, unless customers have previously given the companies permission to process transactions that would take their accounts over the limit.
For too long, credit card companies have had free rein to employ deceptive, unfair tactics that hit responsible consumers with unreasonable costs, the president said in a statement.
But today, we are shifting the balance of power back to the consumer and we are holding the credit card companies accountable, he added.
Americans pay around $15 billion a year in penalty fees, according to the White House.
Connecticut Attorney General Richard Blumenthal said under the rules, the U.S. Federal Reserve can review and reverse certain credit card interest rate and fee increases since January 2009. Blumenthal, in a statement on Monday afternoon, criticized the Fed for not yet determining what rate and fee increases can be reversed.
Treasury Secretary Geithner said more protections are needed for consumers. The Obama administration is still fighting for a single, independent consumer financial protection agency, he said.
Separately, in a report on Monday, credit rating agency Moody's Investors Service said that while the rules will cut interest income and fees for U.S. card issuers, they should have only a small impact on these companies' profitability.
Citigroup Inc, American Express, Capital One Financial Corp and Discover Financial Services, along with JPMorgan and Bank of America, are the six largest U.S. card issuers.
Shares in the major banks closed up on Monday. The broad KBW Banks Index was up 1.9 percent. Shares in card companies Visa and MasterCard were up 0.12 percent and 0.72 percent at $86.91 and $224.24 respectively. But shares in American Express were down 13 cents or 0.33 percent at $38.93.
(Reporting by Elinor Comlay; Editing by Leslie Gevirtz, Phil Berlowitz)