Proposed rules take aim at abusive credit card and bank practices

Federal banking regulators this week proposed new rules to end some of the most criticized practices consumers face when they use their credit cards or overdraw their bank accounts.

The proposal, adopted by the Federal Reserve Board, Office of Thrift Supervision, and National Credit Union Administration is headed for a 75-day public comment, after which it could be modified. You can read a 2-page summary or the 269-page full proposal online. (Start on page 153 to see the actual rule.)

Among the changes, the new rules would:

• Force card issuers to give consumers a reasonable time, such as 21 days (including mail time), to make a payment before imposing late charges and other penalties.
• Limit the practice of applying payments to the lowest-rate portion of a multi-rate balance, such as the 0 percent portion balance instead of a 21 percent cash advance portion.
• Prohibit issuers from raising rates on existing balances, unless there is a variable rate, a promotional rate that is lost or expires, or a cardholder's payment is delinquent for at least 30 days.
• Eliminate the two-cycle method of calculating interest rates, which can penalize cardholders who occasionally carry a balance.
• Stop issuers from charging credit card account fees or security deposits if those fees or deposits would use up the majority of the available credit limit. Fees that exceed 25 percent of the credit limit would have to be spread over a year instead of being charged as a lump sum at the account opening.
• Prevent issuers from charging over-limit fees when a retailer's hold is the only reason the consumer exceeded the limit. Gas stations, hotels, restaurants, car rental companies, among other retailers, often place a hold on a portion of the credit line in anticipation of how much consumers may charge after, for example, completing use of a rental car or a hotel stay. Those holds can take days to disappear, causing consumers to unwittingly exceed their credit limits.
• Prohibit banks from charging a fee after paying an overdraft unless they have first given customers a chance to opt-out of overdraft payments. The rule would apply to any transaction that causes the overdraft, including use of checks, debits card, ATM withdrawals, and recurring payments.

The proposal drew praise from consumer advocacy organizations, including Consumers Union, which has long been calling for credit card reform. However, the organization issued a statement that said the rules need to go further.--Anthony Giorgianni

Comments

[Ken]

It's a shame this won't be retroactive to about 10 years ago as a penalty to all these vampire credit card companies.

[Jami]

Their all crooks. I'm glad to have them out of my life.

[Cynthia Russell]

It's about time. All of the them are crooks. They offered me a low rate card and I had credit protection but discovered they were apply the money to lower rate and not applying anything to the credit protection and allowing it to build up and charged interest. This is a rip off. I can't believe they have been able to get away with this and there other practices..