NEW YORK, NY — If regulators don’t cave to commercial interests, consumers may expect to see friendlier credit card terms after Thursday’s scheduled meeting of the Federal Reserve Board.On the agenda are new regulations that prohibit banks from raising interest rates on pre-existing balances unless a payment is more than 30-days late and ban the practice of applying payments in ways that maximize interest and penalties. The proposed regulations also would put an end to double-cycle billing (which averages the balance from two previous bills and can result in penalties on paid balances), guarantee consumers a “reasonable amount of time” to make payments and require the application of all payments first to the portion of the balance with the highest interest rate. In addition, credit card issuers would be required to make obvious any changes to their terms of service (instead of burying notices in fine print) and end “universal default” programs, which allow credit card companies to raise the interest rates on all cards a consumer has if the consumer misses a payment on any card.
Consumers, the FRB, the Office of Thrift Supervision and the National Credit Union Administration reportedly favor the new regs, which are expected to take effect by 2010. Credit card companies, on the other hand … well, not so much. Banking industry spokespeople say the changes could cost them billions and lead to higher interest rates across the board in order to offset potential losses. In addition, the move could cause the disappearance of low-fee introductory offers and zero-percent balance transfers.
“It will fundamentally change the relationship between cardholders and banks,” Peter Garuccio, a spokesman from the American Bankers Association, told CNN. “By limiting the ability of issuers to use risk-based pricing, the result is likely to be higher prices and less available credit.”
Consumers and consumer advocates don’t seem to be worried about that. They are more concerned about skyrocketing balances and an increasing inability to cover minimum monthly payments. According to FRB figures, Americans have accrued about $976.3 billion in credit card debt, 4.9 percent of which was delinquent in the third quarter of 2008.
In fact, some say the reforms are long overdue and don’t go far enough.
“This industry has been mostly deregulated since the 1980s, and we’ve seen the effects of that,” Curtis Arnold, founder of consumer advocacy group CardRatings.com, told CNN. “It hasn’t worked.”
Consumer Federation of America Legislative Director Travis Plunkett said he hopes Congress will take more action next year, and in fact congress members already are moving in that direction. Both Sen. Christopher Dodd [D-CT] and Rep. Carolyn Maloney [D-NY] have proposed legislation that would impose even stricter controls on banks and credit card issuers.
