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Fed: Expect credit card regulations this spring

Daniel Ray

It’s official. More regulation is coming this spring from the Federal Reserve to outlaw some credit card industry practices.

“We will be proposing regulations under the FTC Act later this spring that would impose new restrictions and requirements on credit card issuers to prevent unfair or deceptive practices,” said Sandra F. Braunstein, director of the Fed’s Division of Consumer and Community Affairs, in testimony today before a House subcommittee. She was testifying before the House Financial Institutions and Consumer Credit Subcommittee, which is holding a hearing on the Credit Cardholders’ Bill of Rights Act.

While she did not reveal what the regulations would be, her testimony dwelled on some of the most highly criticized practices of the credit card industry:

  • Shortening the time cardholders have to submit payments.
  • Two-cycle billing, a method of calculating payments that increases interest charges on those who carry a balance.
  • Allocating payments to the balance with the lowest interest rate. When someone has balances that carry two rates, this method of allocation leaves the high-rate balance unpaid longer, increasing interest costs.

It’s the latest indication that the Fed is stepping up the heat on the card industry.

Using softer language than Braunstein, Fed Chairman Ben Bernanke hinted in his February report to Congress that regulations might be coming, but it went unnoticed as Congress grilled him on the subprime mess and the economy. Separately, the Fed also proposed a series of consumer-friendly changes to Regulation Z last year.

Most of the news accounts you’ll hear or read today will focus on the consumers who are testifying, They were denied a chance to testify at a prior hearing.

But if you’re interested in credit cards, Braunstein’s testimony is recommended reading. It does an excellent job of giving background on how we got where we are today.

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