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 |  Subject: Trade Interfering Feds Seek Curbs On Credit Card Practices  Sun May 04, 2008 12:49 am | |
| WASHINGTON — Federal bank regulators on Friday proposed a new set of rules to make it more difficult for credit card companies to raise rates arbitrarily, conceal high penalty fees or engage in other practices that consumer groups say are abusive.
Under the proposal, credit card companies would generally have to give consumers more time to make payments before they are considered overdue. The companies would not be permitted to steer payments to pay down the portion of the bill that had lower interest charges. And they would be limited in raising the interest rate on an outstanding balance.
“The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” said Ben S. Bernanke, the chairman of the Federal Reserve, one of the three banking agencies to issue the proposal. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”
Banking industry officials said they would fight the proposals.
For months, the Fed has been considering a proposal to require the credit card companies to provide better disclosure of their fees and interest rate policies under the Truth in Lending Act. Officials said the plan announced Friday, which would be completed at the same time, was a change in regulations under the Federal Trade Commission Act. That law gives the federal banking agencies the authority to enforce regulations that prohibit unfair and deceptive acts in commerce.
At a meeting of the Federal Reserve Board on Friday, Mr. Bernanke said consumer comments during rule-making proceedings had made it clear “that improved disclosures alone cannot solve all of the problems consumers face in trying to manage their credit card accounts.” The new rules will also apply to fees and interest rates charged by savings associations for overdraft protection of checking accounts.
Randall S. Kroszner, a Federal Reserve governor who leads the central bank’s consumer and community affairs committee, said the proposal aimed to “increase transparency and fairness in how credit card and deposit accounts operate.”
But bank and credit card companies sharply attacked the proposal and indicated they would campaign vigorously to have it watered down.
“The Federal Reserve’s proposal is an unprecedented regulatory intrusion into marketplace pricing and product offerings,” said Edward L. Yingling, president and chief executive of the American Bankers Association. “We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards. In short, everyday consumers will bear the real cost of these proposals.”
Mr. Yingling said the proposal was “particularly perplexing” because it would result in the reduction of the availability of credit “at the very time the Fed is working to increase access to credit in the marketplace.”
Paul Weston, executive vice president of ICBA Bancard, a subsidiary of the Independent Community Bankers of America that provides credit and debit services for smaller banks, said the rules would add costs but provide no significant benefits to credit card customers of community banks. If adopted, he said, the rules would probably motivate some community banks to eliminate their credit card operations, leaving credit cards to a handful of large institutions.
The Office of Thrift Supervision and the National Credit Union Administration joined the Fed in proposing the rules. They were made public as Congress was considering its own measure to curtail credit card practices.
On Wednesday, Senator Christopher J. Dodd, the Connecticut Democrat who heads the Banking Committee, introduced legislation to reduce high credit card fees and prevent arbitrary rate increases.
“Credit cards too often pose a potential to harm consumers rather than help them,” Senator Dodd said when he introduced the measure. “Confusing, misleading and in some cases predatory practices have become standard operating procedure for some in the credit card industry.”
The agencies said they expected to adopt final rules by the end of the year, after a 75-day comment period.
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