Federal Reserve backs proposing reforms on credit card rules

Credit card fees, which a lot of consumer groups, have called out as unfair and abusive are in the news again. Today, the Federal Reserve Board proposed changes, which some believe have been a long time coming.

From the Federal Reserve's press release:

The Federal Reserve Board on Friday proposed rules to prohibit unfair practices regarding credit cards and overdraft services that would, among other provisions, protect consumers from unexpected increases in the rate charged on pre-existing credit card balances.

Without going to to the regulations governing this, here is what is being proposed:

Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.

Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.

Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.

Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.

Banks would be required to provide consumers a reasonable amount of time to make payments.

Sub prime credit card products are also being addressed by limiting fees that can be automatically applied to a balance. Greater transparency on interest rates and credit limits is being proposed, also.

ConsumersUnion.org issued a press release the day before the Federal Reserve did offering a mixed reaction to the proposal:

"It’s about time federal regulators offered consumers some relief from unfair bank practices," said Consumers Union Financial Services Campaign manager Gail Hillebrand. "This proposed rule finally acknowledges that some practices just aren’t fair. All the disclosure in the world can’t make it fair to send the bill too close to the due date; to raise the interest rate on money already borrowed: or to charge a fee for a problem caused by the bank’s practice to allow a credit hold or a debit hold.”

The proposed rules respond to a sustained outcry from consumers and strong interest in Congress in credit card reform and in reform of bank account practices such as overdraft loans.

Consumers Union praised the approach of the proposed rule to ban, not just require more disclosure about, some of the worst credit card practices.

They also issued a press release on April 30th commending Senator Dodd, who is the Senate Banking Committee Chairman, for introducing the Credit Card Accountability, Responsibility and Disclosure Act.

ConsumersUnion.org has long been critical of the credit card industry and has an ongoing campaign to bring about reforms to the industry.

Federal Reserve press release, here.