By Mark Huffman
ConsumerAffairs.com
December 18, 2008
As expected, federal banking regulators approved a final rule Thursday that addresses longstanding consumer complaints about credit cards.
The action was taken by the Office of Thrift Supervision (OTS), the Federal Reserve and the National Credit Union Administration. The banking industry called it "unprecedented in scope."
The rule bans practices often cited as unfair to consumers, such as raising the interest rate on an existing credit card balance when the consumer is paying the credit card bill on time.
"I am extremely proud that OTS leadership has culminated in this important rule to ensure fair treatment for the millions of Americans who use credit cards," said OTS Director John Reich. "The rule 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."
The rule requires that consumers receive a reasonable amount of time to make their credit card payments, prohibits payment allocation methods that unfairly maximize interest charges and, in the subprime credit card market, limits fees that reduce the credit available to consumers.
"In seeking to address concerns expressed by policymakers and consumers, the Fed has severely restricted or prohibited card issuers from engaging in certain practices such as 'universal default,' 'double-cycle billing,' and raising interest rates on existing balances," said Edward L. Yingling, President and CEO of American Bankers Association. "The basic principles contained in many legislative proposals are reflected in these regulations."
And as far as Yingling and his fellow bankers are concerned, that's a good thing.
"The disclosure requirements, which are the result of several years of consumer testing undertaken by the Fed, are a dramatic improvement over the existing legalistic disclosures," Yingling said. "The new regulations will fundamentally alter the relationship that cardholders have with their banks and the way that banks communicate with cardholders."
The most dramatic change consumers should see in the new rule is a longer window in which to make their monthly payment. A common complaint has been that credit cards often shorten the payment window, making a late payment fee more likely. Under the new rules, banks, thrifts and credit unions must ensure that credit card statements are mailed or delivered at least 21 days before the payment due date.
Those who have existing balances will not see their interest rate raised. When consumers have two different balances, credit card companies will not be allowed to allocate all of the consumer's payment to the lower interest balance, maximizing the interest charge to the consumer.
Consumers who are making on-time credit card payments will not see the terms of their agreement change, simply because of a change in their overall credit rating.
One section of the rule directly attacks "advance fee" credit cards. Companies can't charge consumers a fee for simply opening an account if the charge would use most of the consumer's credit line.
But none of this is going to happen right away. The rule change takes effect July 1, 2010.
