Fed Tightening Credit Card Rules
May 5th, 2008 by Kenneth Long
On Friday May 2, the Federal Reserve announced a proposal that would rein in abusive practices of some credit card issuers. It would also place new restrictions on credit cards that all card issuers would have to follow.
Most of the changes relate to interest rate hikes, the charging of fees and disclosures to new applicants. Also included in the Fed proposal are revisions to billing and payment cycle rules.
Interest Rate Changes
Credit card issuers might be blocked from raising a cardholder’s interest rate for reasons deemed unfair. This could effectively end the once common practice of universal default. Most major card issuers abandoned universal default practices voluntarily after increased Congressional scrutiny regarding the practice.
Credit card issuers may have to wait until a cardholder is a full 30 days delinquent before they can justify raising the interest rate. Additionally, there may be new restrictions on charging over-the-limit fees resulting from holds, such as from a rental car company or hotel. Banks may be blocked from charging a fee based on such holds.
Credit card balances split into multiple interest rate categories may see payments disbursed in a way favorable to the cardholder. Card issuers currently apply payments to the lowest interest rate balance first. These rules would apply to any portion of a payment that exceeds the minimum payment.
Billing Cycle Changes
The Fed has recommended that cardholders are ensured a reasonable period of time in which to make a minimum payment. This could substantially reduce the charging of some late fees.
The double cycle billing practice would also end under the Fed proposal. This eliminates finance charges incurred on a zero balance that are based on a carryover from the previous billing cycle.
Disclosures and Requirements
Credit card issuers may have to be more forthcoming in revealing eligibility requirements for the best rates that they advertise. It may not be enough to simply disclose that applicants with lower creditworthiness may automatically receive an alternate product.
Deposit and fee requirements may change for some products. Fee harvester cards may be permanently banned.
Feedback
Consumer groups argue that the Fed proposal does not go far enough. They want even more restrictive measures put in place. One such proposal was originally submitted by Rep. Carolyn B. Maloney (D-NY). She is the sponsor of the Credit Cardholders’ Bill of Rights Act (HR 5244) that would place more aggressive consumer protections on the credit card industry.
Fed Chairman Benjamin Bernanke stated that “consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.” Bernanke believes that the proposal provides a new standard for fairness for credit card plans.
Credit card issuers, on the other hand blasted the proposed changes. The Chief Executive of the American Bankers Association, Edward Yingling, stated that “the Federal Reserve’s proposal is an unprecedented regulatory intrusion into marketplace pricing and product offerings.
Industry insiders threatened that such changes could lead to even more restrictive credit offerings, which could severely limit access to credit cards for subprime borrowers. Any changes however will not be voted on until after the 75 day public comment period has passed. Final proposals could go into effect by the end of 2008.
Related Links
Rep. Carolyn Maloney’s Credit Cardholders’ Bill of Rights
Related Article: Credit Card Bill of Rights Act
This entry was posted on Monday, May 5th, 2008 at 11:34 am and is filed under Consumer Protection, Credit Cards. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
October 9th, 2008 at 6:15 am
Credit card debt is one of the most critical subjects in today’s economy. People from all walks of life, young or old, can surely relate to this matter. The majority of these companies’ target is our younger generation. Some college students have found themselves up to $12,000 in debt before completing their course in college. On a December night in 1997, a young woman was found dead after she hanged herself in her dorm room. On her bed, she had all of her credit card bills spread out. Apparently, she was about $3,000 in debt and had lost her part-time job, clueless of what to do. She died at the age of 18. The tragic story had brought many people to their senses. It’s sad to say that a good number of people who have credit cards at hand are more likely to spend more than what’s needed. Thus, this gradually adds up to a larger debt than what most people could imagine. Budgeting and smart spending is strongly advised to prevent any type of debt. When your budget has a drawback because of life’s unforeseen calamities, a quick online payday loan is a great alternative to manage your short-term financial needs.
Post Courtesy of Personal Money Store
Professional Blogging Team
Feed Back: [Deleted]
Home: [Deleted]
Blog: [Deleted]
October 9th, 2008 at 8:44 am
Dear Payday Loan Advocate:
Although your comment was marked as SPAM, I decided to allow it (less the links) so that our viewers can see the ridiculous nature of your argument.
Payday loans are not, never were, and never will be a “great alternative to manage your short-term financial needs.” They are a sure way to accelerate your financial decline, destroy your credit and raise your stress levels.
Payday loans are for short-term needs, like a utility bill. Did you know that the water and cable companies will likely work with you to keep service on for a couple of weeks. Most power companies will let you go up to 90 days delinquent before disconnecting service, as long as you stay in touch and communicate your actions to clear up the late payments.
Even most traditional vehicle loans will allow you to catch up a late payment rather than face repossession. You just have to communicate with them. IMPORTANT NOTE: If you use a buy here pay here financing service or other bad term loan service, then they may not be willing to work with you. Consider that the next time you finance a major purchase!
By the way, the examples cited by Payday Loan Advocate are students that committed suicide due to light credit card debt with up to 28% interest. Imagine if they were facing 390%!
These students were featured in the movie “Maxed Out.” Shame on you Payday Loan Advocate for trying to profiteer from such a tragedy!