Credit card crackdown coming soon

The Fed is set to vote Thursday on a number of key protections for credit-card customers.

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By Jessica Dickler, staff writer

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NEW YORK ( -- Cash-strapped consumers might get some welcome news on Thursday when regulators vote to rein in controversial credit card practices.

The proposed rules, which have received overwhelming consumer support, prohibit banks from practices like raising the interest rates on pre-existing credit card balances unless a payment is over 30 days late, and applying payments in a way that maximizes interest penalties.

The Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration, are all expected to approve the regulation. The rules are expected to take effect by 2010.

"It will fundamentally change the relationship between cardholders and banks," said Peter Garuccio, a spokesman for the American Bankers Association.

If approved, the Fed's rules will mean an end to double-cycle billing, which averages out the balance from two previous bills. That means that consumers who carry a balance can get hit with retroactive interest on their previous month's bill - even if they've already paid that off.

Consumers would also be given a reasonable amount of time to make payments, and payments would be applied to higher-rate balances first, to reduce interest penalties and fees.

Credit card statements would clearly list the time of day that a payment is due, and any changes to accounts would be in bold or listed separately.

And, finally, no more universal defaults - policy which allows credit card issuers to increase the interest rate on one card if a customer misses a payment on another card.

Trouble keeping up

Consumer advocacy groups say credit-card reform couldn't come soon enough. Travis Plunkett, the legislative director for the Consumer Federation of America said new rules are "essential" at a time when "so many Americans are falling behind on their loans."

In the midst of a credit crunch, Americans have about $976.3 billion in revolving credit and 4.9% of all credit cards were delinquent in the third quarter, according to the latest data from the Federal Reserve.

"This industry has been mostly deregulated since the 1980s and we've seen the effects of that," said, Curtis Arnold, founder of, a consumer advocacy group. "It hasn't worked."

Representatives from the banking industry argue that while many of the changes are consumer friendly, there might be a downside to increased regulation that should not go unnoted.

"By limiting the ability of issuers to use risk-based pricing, the result is likely to be higher prices and less available credit," explained Garuccio, of the American Bankers Association.

Not only would card companies have to impose higher interest rates across the board to offset losses, but low introductory offers and zero-percent balance transfers are likely to be scaled back as well, he said.

Some consumer advocates argue alternatively that these reforms don't go far enough. Plunkett, the consumer advocate, said he hopes Congress will pass more sweeping credit-card reforms next year that address a number of other "abusive practices" including "reckless lending to young people and high fees."

Sen. Christopher Dodd and Rep. Carolyn Maloney have both proposed credit-card legislation that would impose even more constraints on issuers. To top of page

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