Consumer rights alert: regs up for comment on credit card practices

I just learned (perhaps I’m a bit behind on this one — thank heavens for CNN’s story) that the Federal Reserve Board has issued draft regulations restricting a variety of credit card company practices that screw consumers.

According to the FRB press release (for some reason, I can’t get the actual regs to load), the regs do a number of things that are worthy of support:

  • 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.

The proposal would also address subprime credit cards by limiting the fees that reduce the available credit. In addition, banks that make firm offers of credit advertising multiple rates or credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.

“Unfair practices can impose significant costs on credit card users,” said Federal Reserve Board Governor Randall S. Kroszner. “The new proposed rules would provide the benefit of substantial protection against practices that can harm consumers.”

The Board’s proposal under the FTC Act also addresses acts or practices in connection with a bank’s payment of overdrafts on a deposit account, whether the overdraft is created by check, a withdrawal at an automated teller machine, a debit card purchase, or other transactions. The proposal requires institutions to provide consumers with notice and an opportunity to opt out of the payment of overdrafts, before any overdraft fees or charges may be imposed on consumers’ accounts.

I encourage everyone to take a look and submit comments. According to CNN (alas, again, can’t get the regs open to see directly) comments are open until August 4.

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2 Responses to “Consumer rights alert: regs up for comment on credit card practices”

  1. Mike Says:

    Paul: I looked into CC practices recently. Man, that’s some shady stuff. Why hasn’t Obama gone after CC companies? He claims to be looking out for the “little guy”?

    This is an issue where the little guy is clearly getting screwed. Yet Obama has done nothing meaningful.

  2. Paul Gowder Says:

    I don’t even want to think about Obama right now. I’m still pissed off at him for the public funding thing (+ telco immunity, etc.).

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