Finally! Banking Regulators Propose Ending Unfair and Abusive Credit Card Practices

This is the first step; the next step is up to you!   

The Federal Reserve Board and two other federal banking agencies have released a proposed rule that aims to reform some of the most abusive credit card lending practices.  The new proposed rule finally offers some real protections, not just more disclosure. See summary of proposal.

The proposed rule includes these important credit card reforms:

• Gives you more time to pay. A payment can’t be treated as late for fees or negative credit reporting unless the bill was mailed or delivered to you at least 21 days before the due date.  This helps end card companies' ever-shrinking repayment periods.
  
• Ends tricks that increase your finance charges. Card companies routinely require you to pay off low-interest balances (like transfer balances at teaser rates) before allowing you to touch higher-interest debt (like new purchases.) That’s never in your best interest because it means your higher interest debt will never be paid off until your lower interest balance is paid off completely.  The rule requires that your payments must be allocated fairly to help minimize interest charges.
  
• Prohibits rate increases on your existing balance. Today, when a card company jacks up your interest rate, for whatever reason, it applies that rate hike to your current balance. Under the new rule, rate increases can be applied to your existing balance only if you have a variable rate card, your promotional rate expires or is lost, or you pay your bill more than 30 days late. 

o However, if the bank raises the rate on a category of transactions for everyone holding the card, they can raise your minimum payment slightly so that you will pay the balance more quickly, in about 5 years.

• Eliminates hidden interest charges. Today, some card companies charge interest even on debt repaid during the grace period. The proposed rule would end that.

Consumers played an important role in this process. The Federal Reserve Board said it decided to take action after it received over 2,000 comments from individual consumers describing how they were treated unfairly by credit card companies.  This is proof that consumer comments make a real difference.

This important new rule of fair play is just a proposal. This is a three step process and the proposed rule is step one. The banks are fighting hard to weaken the rule before it becomes final.  Don't let the banks win! The Federal Reserve Board needs to hear from more than the big bank lobbyists. You can help ensure that the proposal remains strong.  It’s critical that the Federal Reserve Board hears from ordinary Americans that they should hang tough against the powerful banks. If you’ve been treated unfairly by your credit card company, tell the Federal Reserve Board your experience and that you support the proposed reforms.

The next step is up to each of us, but the time is now! The Federal Reserve Board is only accepting consumer input until August 4th, 2008. Let the Federal Reserve Board know what you think about these reforms or to tell them about any other reforms you want on credit cards:     

Submit a comment. The official name of the rule is Regulation AA - Unfair or Deceptive Acts or Practices. Include the Docket number [R-1314] to be sure that the Federal Reserve Board sees your comments.

To file your comments:

The comments you submit will be made available to the public, so don't include your account number.  You can also leave out your street address if you prefer, though you should include your city.

Read the full proposal here.  The real substance starts on page 28942 of this document.