Vision Credit Education, Inc.

According to recent revelations by Federal Reserve Chairman Ben Bernanke, the Fed has been reviewing Regulation Z for over three years. They anticipate the first major overhaul of Regulation Z this Spring.

What is Regulation Z?

Regulation Z includes a set of consumer rights known as the Truth in Lending Act (TILA). TILA governs such credit card practices as expressing interest rates as annual percentage rates (APR) and printing those rates at a standard font so that they stand out.

The last major change to these rules occurred in 1981. This update is expected to be announced within months.

Bernanke’s Comments

Three years ago, the Board began a comprehensive review of Regulation Z, which implements the Truth in Lending Act (TILA). The initial focus of our review was on disclosures related to credit cards and other revolving credit accounts. After conducting extensive consumer testing, we issued a proposal in May that would require credit card issuers to provide clearer and easier-to-understand disclosures to customers. In particular, the new disclosures would highlight applicable rates and fees, particularly penalties that might be imposed. The proposed rules would also require card issuers to provide forty-five days’ advance notice of a rate increase or any other change in account terms so that consumers will not be surprised by unexpected charges and will have time to explore alternatives.

These comments were made by Fed Chairman Ben Bernanke in July 2007. Since then, he has reiterated the need for such changes. On February 27, 2008 Bernanke stated that such changes would be announced this Spring.

What this Could Mean

More restrictions are expected to be placed on credit card issuers. These changes should make it harder for credit card issuers to raise interest rates due to universal default or other perceived instances of increased consumer risk.

The main objective is to provide consumers with more protection from arbitrary rate increases. This could help many debtors plan for and avoid some interest rate increases on their credit cards.

Cardholders would have more time to transfer balances or arrange alternative borrowing options. They could also pursue debt counseling in order to gain control of all of their credit card accounts.

Credit card issuers have lobbied heavily for the right to police themselves. However, given the shaky financial status of many Americans and the recession that has taken hold, consumers are likely to receive new protections.