The showdown between the credit card companies and the federal government has been looming for years and now it is about to reach a climax.
The government wants to crack down on "unfair and deceptive" practices that have added billions of dollars of debt to Americans already trying to cope with the sour economy.
Tough New Rules
The Federal Reserve wants to crack down with the toughest new rules in decades. The rules would stop credit card companies from raising interest rates for no reason and make sure customers have enough time to pay their bills.
Some of the other proposed rules would prohibit deceptive credit offers and the common practice of allocating payments among balances with different interest rates.
Travis Plunkett, legislative director for the Consumer Federation of America, said that while he hadn't yet seen the details, the rules "appear to address some of the most significant abuses in the credit card marketplace right now."
Rep. Carolyn Maloney, D-N.Y., who has introduced legislation to protect consumers from credit card abuse, said in a statement that she was pleased the Fed had adopted some aspects of her legislation.
But she also expressed concern that "by the time the Fed gets around to finalizing these credit card reform proposals, they will be watered down and come too little too late for consumers who need relief now."
Plunkett said his group estimates that credit card debt is now about $850 billion, with households that don't pay their credit card bills in full every month owing an average $17,000.
In Place by the End of the Year
The proposed new rules would prohibit:
-Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay;
-Unfairly allocating payments among balances with different interest rates;
- Unfairly raising annual percentage rates on outstanding balances;
-Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account;
-Unfairly computing balances;
-Unfairly adding security deposits and fees for issuing credit or making credit available;
-Making deceptive offers of credit.
The new rules could be in place by the end of this year. However the banking industry is expected to put up a fight. The Fed was expected to vote Friday afternoon on its approval of the proposed rules.
Ken Clayton, senior vice president of card policy for the American Bankers Association, said the industry will fight the new proposals, describing them as "aggressive regulatory intervention in the marketplace that will result in higher prices and less consumer credit."
He said the change "basically says that we can't price for risk" and that if higher risk borrowers don't bear the costs, those costs will be passed along to other consumers.
Source: The Associated Press