Vision Credit Education, Inc.

On Thursday, December 18, the Treasury’s Office of Thrift Supervision adopted a series of new regulations that will restrict consumer-unfriendly policies that have long been practiced by a number of major credit card issuers. This includes the “any time for any reason” rate increase provision that was abandoned in 2006, only to resurface in 2008.

The bad news for consumers is that these changes will not be implemented until 2010. The Federal Reserve and National Credit Union Association are expected to approve the measures.

The good news for consumers is that these new provisions will stop the arbitrary interest rate hikes that many cardholders have experienced in the last few months of 2008. Such hikes caused major increases in finance charges as well as minimum payments.

Director John Reich summarized the goals of the new regulations, saying that they:

will enhance public confidence in financial institutions and establish a level playing field for institutions that want to do business fairly without suffering competitive disadvantages.

These are the new regulations that will go into effect in 2010:

• Card issuers can only raise interest rates on new purchases or new cards. Current balances will be protected from arbitrary increases.
• Double-cycle billing will be banned.
• Major changes to account terms (including rate hikes due to late payments) must be announced 45 days in advance rather than the previously required 15 days notice.
• Cardholders must be given a reasonable period of time to pay. A minimum of 21 days is recommended but not specifically required.
• Card issuers cannot penalize for going over-the-limit if the overage was caused by a hold rather than actual charges (rental car companies often place a $500 hold for a rental).
• Additional payments must be applied to high rate balances first. Card issuers normally apply extra payments to the lowest rate balance first.
• Fee harvester cards cannot charge more than 50% of the credit limit as upfront fees. Additionally, these cardholders may pay those fees gradually over a year rather than on the first payment.

These changes are expected to allow more cardholders to avoid default and repay their balances. Additionally, they are expected to reduce the earnings opportunities of major credit card issuers. The question is, will the drop in losses offset the lost earnings?

Also, will cardholders be able to make it until 2010? If not, they may need the lower interest rates and lower payments that credit counseling can provide. Even if they do last until the changes are implemented, how many of them will already have higher rates imposed on their cards. You can expect most card issuers to increase their rates prior to the date that the regulations are imposed. This may be their last chance to raise your rates!