The Federal Reserve, OTC, and NCUA Propose Amendments to Credit Card Rules

The Federal Reserve and other bank regulators are finally getting serious about cracking down on credit card abuse by the banks, proposing amendments to rules passed in December of 09. The amendments prohibit hair-trigger rate increases and rate increases when an account has been closed or acquired.

Back in December, the Federal Reserve, along with the FDIC and the National Credit Union Association passed a series of credit card regulations that Ben Bernanke described as the most sweeping in the history of the credit card industry. The rules, which were years in the making, came at a time when banks were hiking credit card rates in an almost indiscrimate manner.

Amongst the additions to Regulation Z (the set of laws that help regulate credit lending) were the following:

• Credit card companies cannot treat a payment late unless the consumer has been provided a reasonable amount of time in which to pay the bill. Credit card companies must send a statement at least 21 days before the bill is due.
• When a borrower maked a credit card payment above the minimum balance, the card companies must apply it either in entirety to balance with the highest interest rate, or must divide it pro rate amongst the various balances. They cannot use the amount ot pay off the lowest interest rate balance.
• Banks must advertise all of the potential APRs carried by a credit card and cannot increase the APR unless they specifically state what that increase might be - at account opening. This does not apply to accounts that are marketed as variable rate but does apply to fixed rate cards. Banks can increase rates after a promotional period, as long as they advertise what that new rate will be when the promo period ends. Once again, this must be done at account opening.
• Credit card companies are also prohitibited from applying finance charges to prior month balances that were covered by a grace period that expired. As an example, if a grace period ended at the end of March, comapies cannot apply interest to those balances for the April billing statement, even if it covers part of March.
• Banks cannot charge opening fees and then finance them if those fees in the first year consume the majority of the available balance on the account. Banks cannot open a card with a $200 credit limit and have the consumer finance an opening fee of $150 on it.

Taken as a whole, the new regulations help to provide more protection to consumers. Now, consumers have to help themelves by not purchashing more than they can afford, and by finding the least expensive and lowest rate credit cards.