Fed moves ahead on credit card protection plan

WASHINGTON — The Federal Reserve proposed rules Tuesday to better protect Americans from sudden hikes in interest rates on credit cards.

The proposal would generally bar rate increases during the first year after an account is opened.

It also would ban — with a few exceptions— increasing the rate on existing credit card balances. For instance, if a customer is behind more than 60 days on a payment, the rate on the existing balance can be boosted.

“This proposal is another step forward in the Federal Reserve’s efforts to ensure that consumers who rely on credit cards are treated fairly,” said Fed member Elizabeth Duke, the point person on the effort.

The proposal also would require credit card companies to obtain a customer’s consent before charging fees or transactions that exceed their credit limit, and would forbid companies from issuing credit cards to people under the age of 21 unless they have the ability to make the required payments or a parent or other co-signer.

The Fed is required to take the action under legislation passed by Congress and signed into law by President Barack Obama in May.

The public, industry and other interested parties will have an opportunity to weigh in on the Fed’s proposal. The provisions are slated to take effect on Feb. 22, 2010.