Research, regulation, industry reports

Fed to release new credit card rules this week

Connie Prater

The wait may be over for those pushing for tougher credit card industry regulation.

The Federal Reserve Board is meeting May 2 to vote on “proposed amendments to consumer regulations to prohibit unfair or deceptive acts or practices by banks,” according to its Web site.

There’s no word yet on exactly what the new rules will cover. The Fed has the authority under the Federal Trade Commission Act (FTC Act) to regulate unfair or deceptive trade practices related to the banking industry.

What’s unfair?
Is raising a credit card interest rate based on a late payment on another, unrelated credit account unfair?

Is hiking interest rates above the 20 percent or 30 percent APR level and applying it retroactively to previous purchases unfair?

Is allocating monthly payments to lower interest rate charges first rather than to higher rate balances deceptive?

We’ll see what the Fed governors say when the regulations come out.

Too little, too late
New York Congresswoman Carolyn Maloney, who introduced the Credit Cardholders’ Bill of Rights in February 2008, said in a press release today:

“It’s nice that the Fed has finally decided that something needs to be done to rein in credit card industry abuses, but struggling Americans can’t wait for a repeat of the regulators’ abysmal performance on subprime mortgage regulation. By the time the Fed gets around to finalizing these credit card reform proposals, they will likely be watered down and come too little too late for consumers who need relief now.”

It’s true that churning out new regulation is not a speedy process. The Fed’s proposed amendments to the Truth in Lending Act requiring clearer disclosures of terms for open-ended credit (called Regulation Z) has been languishing for nearly a year.

Sandra Braunstein, the director of the Fed’s division of Consumer and Community Affairs testified April 17 before a congressional hearing and said the FTC ACT and Reg Z amendments would be finalized “by the end of the year.”

More legislation
Maloney said she’s not holding her breath waiting for timely, effective action from the Fed and urged her colleagues in Congress to act quickly with legislation.

It appears her U.S. Senate colleagues are listening. Yet another credit card bill is scheduled to be introduced tomorrow by Democratic senators Chris Dodd of Connecticut and Carl Levin of Michigan. Their legislation — called the Credit Card Accountability, Responsibility and Disclosure Act or CARD Act — will target “credit card billing, marketing and disclosure practices.”

Levin and Dodd will be joined by representatives from several consumer groups and Harvard University law professor Elizabeth Warren, a recognized expert on credit and bankruptcy, when they introduce the bill.

‘Waiting is not an option’
Says Maloney: “We can’t wait to act. More and more Americans are turning to their credit cards to help pay bills, buy groceries and make ends meet in this troubled economy. Congress can and should take swift action to reform major credit card abuses.”

Reality check: Congress is no cake walk either. Bills must be passed by the House and Senate and signed by the president. That won’t happen overnight, either.

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  • Stacey

    It’s about time the Feds get involved with these (loan-sharks) What about the letters they sent out that looked like junk mail that we all threw out, stating that if you didn’t sign it and return it, that they would raise the interest rate to a whopping 27% Also, they can raise your rate if your credit score is bad..People can’t bail themselves out anymore because of this. This is what’s happening to people and why we are all going broke.

  • Connie Prater

    You can submit comments to the Federal Reserve regarding your experience at the following Fed Web site:
    Look for “Regulation AA unfair and deceptive pracitices”

  • Mike

    I had a personal experience of my own with this. The bank was Washington mutual (WAMU). Yes they raised my rate to 23 1/4 % because of risk based repricing. This was totally WRONG since I could show proof that my actual credit score was around 780 and other Credit card companys in which I had accounts were eager to get additional business because of credit score and also my payment history. Even furhter I had a ZERO balance!!!!!!To make a long story short. I thanked WAMU for great divorce after 8 long years, cut up the cards and sent them along with my letter requesting they close my account. I will never do business with WAMU AGAIN! EVER. I actually called my other card company and they simply offered me a lower rate, upgraded my card and gave me a higher limit. HOW COULD THIS BE?

  • Barbara

    I want to know why the credit card companies get to raise the interest so high that when you make your payment.. 3/4th of it goes to interest. I have been a good customer for yrs., then I have a rough month.
    Also..why can’t we decide where our payment goes. I want more to go towards the highest interest., the they (the banks, credit card com) tell me it goes to the lowest owed..

  • Dan

    I have been working to pay down my credit card debt to increase my credit scores. The economy has been making that increasingly difficult. I had my Lowe’s (G.E. Credit Bank) card down to about $1100 with a $2000 limit. Yesterday I checked the available balance to make sure I had enough available in the event I had to pay for a colonoscopy that I had today and/or to use to pay my late summer property taxes if I had to. To my surprise, my available balance was only $156. I contacted Lowes’s Visa Credit and was told they had reviewed all of their accounts and based on our credit reports and records with them, they may have reduced credit limits. I have not had any problems with Lowes. I recently paid down my balance (which allowed them to lower my credit limit). I had a bankruptcy in 2003 due to divorce and received the card after that when my credit scores were much lower than they are now. They told me they sent a letter. I explained that I hadn’t received a letter. They replied that they just sent it that day. Needless to say, all the trouble I went to to lower my credit card debt, increase my credit scores and make sure I had funds available for an emergency went right down the tubes. Credit Card companies take complete advantage of the public. Is there any recourse?

  • David

    Yeah, blame the credit card companies. Here’s an idea; don’t spend money you don’t have.

  • Toni

    My husband recently became disabled due to a back surgery and we always paid our bills on time prior to this. Since he is now on disability he makes 40% of what he used to make. I tried to explain this to the credit card companies and they respond by raising my interest rates to almost 30%. Now if I cant afford to pay me bills now that I make 60% less income then I used to, how can I pay when they double my payment with a increased interest rate? I think it is bullXXXX that they can change your rate anyways. They should be able to only charge the rate that was current when the debit was incurred. Who else gets to give you a loan and then all of a sudden change your rate to doubled what it was and there is nothing you can do about it. This needs to be stopped!

  • Linda

    I would like to know why there is no grace period now? If you pay 1 day late there is a $39.00 fee for most credit cards.Sometimes it will push you over the limit and then they tack a over the limit fee. Yes I do know it is not a smart thing to use credit but when times get rough people are desperate. The companies that have loyal customers like myself and never want to pay a bill late are treated like low lifes.Someday these companies will hopefully be out of business due to their greed.