Fed moves on credit card crackdown
Bank regulators approve proposal to eliminate industry practices like 'double-cycle billing' as banks push back. New rules could be in place by end of year.
NEW YORK (CNNMoney.com) -- The Federal Reserve on Friday pushed ahead with a proposal to stop abuses by credit card issuers, a day after two other key bank regulatory agencies proposed effectively the same package of new rules.
The move comes at a time when the $2 trillion industry has come under increasing scrutiny.
"The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate," said Ben Bernanke, chairman of the Federal Reserve, which regulates many U.S. banks. "Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs."
Among other things, the plan would allow consumers more time to pay monthly bills. It would also prevent companies from applying interest-rate increases retroactively to pre-existing balances. And it would ban "double cycle billing," a practice that computes finance charges based on previous billing cycles.
A top financial services lobbyist blasted the plan.
"The Federal Reserve's proposal is an unprecedented regulatory intrusion into marketplace pricing and product offerings," said Edward Yingling, chief executive of the American Bankers Association.
On Thursday, the Office of Thrift Supervision, responsible for overseeing the nation's savings and loans, and the National Credit Union Administration, approved proposed rules the Fed "substantively similar."
The reforms will be subject to public comment for 75 days. The agencies expect to finalize any new regulatory changes by the end of the year.
Regulators under pressure to act
Under the new scheme, companies that issue credit cards would be required to outline the factors that determine which of several advertised interest rates and credit limits a customer will receive. In addition, the rules would prevent companies from charging fees to open an account and receive credit.
Regulators, most notably the Fed, have been under pressure from politicians to do a better job of overseeing the banking industry in general or risk losing some of their regulatory powers.
At the same time, lawmakers have pushed to make the credit card industry more consumer friendly at a time when Americans struggle with debt and increasingly rely on their credit cards to make ends meet.
U.S. consumers were saddled with $850 billion in credit card debt as of the end of last year, according to the Consumer Federation of America.
Sen. Christopher Dodd, D-Conn., joined by a group of fellow Democratic lawmakers, unveiled legislation on Wednesday that incorporated some of those same regulatory proposals and added some new ones such as preventing issuers from charging customers a fee to pay a credit card bill by phone.
Earlier this year, Rep. Carolyn Maloney, D-N.Y., introduced a legislative plan dubbed the Credit Cardholders' Bill of Rights, which garnered attention at a House hearing last month.
Industry says rules could choke off credit
Card industry representatives have been quick to warn that the passage of new legislation or additional regulation could hurt all credit card carriers.
"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," said Yingling, the banking industry advocate. In short, everyday consumers will bear the real cost of these proposals.
Americans with shabby credit histories, for example, may no longer have similar access to credit. At the same time, consumers with good credit could soon find themselves facing higher interest rates.
In the early 1980s, before issuers relied on credit scores in vetting customers, interest rates hovered around 18% and everyone paid an annual fee.
Nowadays consumers pay an average interest rate of just over 13%, and three quarters of card issuers do not charge an annual fee, according to the bankers group.
The consumer federation and the U.S. Public Interest Research Group said they were encouraged by the joint proposal, but added that regulators did not address other problems like unwarranted interest rate changes and aggressive marketing to college students.
"It's a good first step in addressing a number of abusive practices," said Travis Plunkett, legislative director at the consumer federation. "However, it will still be necessary for Congress to step in because the proposal only deals with a few of the problems that have been identified."
At the same time, legislators could have quite a fight on their hands. Previous efforts trying to reform the industry have largely failed, while recent legislative proposals have found little support among GOP lawmakers. 
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