The U.S. Supreme Court (search) Friday agreed to decide how credit card issuers must disclose fees they charge when cardholders exceed their credit limits.

The justices will review a ruling by a divided panel of the U.S. Court of Appeals for the Sixth Circuit (search) in Cincinnati.

That court ruled that credit card companies must include so-called "over-the-credit-limit" fees in finance charges it discloses to consumers.

The credit card industry discloses these fees separately as "other charges."

U.S. Solicitor General Theodore Olson (search) asked the high court to reverse the ruling. There are nearly 1.3 billion U.S. credit card accounts, Olson said, citing Thomson Financial Media.

The case stems from a class-action lawsuit brought by Sharon Pfennig.

She alleged that Household Credit Services Inc., a unit of Prospect Heights, Illinois-based Household International Inc. (HI), violated the Truth in Lending Act by letting her exceed her credit limit and then imposing fees.

Pfennig also sued MBNA America Bank NA, which had acquired her account. The bank is a unit of MBNA Corp. (KRB).

A federal district court dismissed Pfennig's complaint, saying the over-the-limit fees are not finance charges.

The appeals court reversed that decision, saying the fee "falls squarely within the statutory definition of a finance charge."

Card issuers, however, follow the Federal Reserve Board's Regulation Z, which requires banks to treat over-the-limit fees separately from finance charges.

In his brief, Olson said the Sixth Circuit ruling hurts lenders and consumers.

"The decision creates conflicting disclosure rules that will burden credit card lenders, expose lenders to significant liability, confuse consumers, and impair the effective administration of Regulation Z," he wrote.

"The existence of conflicting disclosure rules also frustrates (the Truth in Lending Act's) goal of enabling consumers accurately to compare the cost of credit," Olson added.

Kathleen Rizzo-Young, a Household International spokeswoman, said the Supreme Court decision to hear the case "is very good news. We have felt very strongly all along that our disclosures were proper under Regulation Z."

Household International is a unit of Britain's HSBC Holdings Plc.

The case is Household Credit Services vs. Pfennig, No. 02-857. A decision is expected by July 2004.