WASHINGTON—New regulations proposed by the Federal Reserve Board to safeguard consumers from unfair and predatory credit card practices should be finalized by the end of this year.
The new rules aim to curtail sudden interest rate hikes on existing credit card bills, especially retroactively, and prohibit hidden and excessive interest and other charges.
Credit card providers will also have to grant realistic time to pay by sending bills no less than 21 days before the due date.
Safeguarding consumers from the credit card hawks also includes transparency concerning fees, interest rates and other associated costs.
The regulations were developed from consumer outcry about unfair credit card practices. Many called the present dilemma "traps for the unwary," and hoped that the Fed would level the playing ground.
"Unfair practices can impose significant costs on credit card users. The new proposed rules would provide the benefit of substantial protection against practices that can harm consumers," said Randall Kroszner, Fed board member in a May press release.
Representative Carolyn B. Maloney (D-NY), Chair of the Financial Institutions and Consumer Credit Subcommittee, is one supporter of the Fed's proposed rules. However, she is skeptical that the Fed will act speedily and truly in the best interest of consumers.
"By the time the Fed gets around to finalizing these credit card reform proposals, they will likely be watered down and come too little, too late for consumers who need relief now," said Maloney in a recent press release.
Far Enough?
Consumer advocates support the Fed's action, but don't believe it goes far enough to put an end to predatory lending practices.
The Consumer Federation of America pushed for Congress to step in with legislation to curb unfair credit card practices.
"We commend federal regulators for taking an important first step to stop credit card companies from pumping up their profits by using hidden traps and tricks that drive up the amount of debt consumers owe," said Travis B. Plunkett, legislative director of the Consumer Federation of America. "We urge Congress to focus on enacting a permanent law that curbs abusive practices not addressed in this proposal."
Credit Card Marketing
Aggressive credit card marketing needs to be curtailed, according to Plunkett's recent testimony before the House Subcommittee on Financial Institutions and Consumer Credit.
Credit card companies spent $1.2 billion from January to September 2007 on advertising alone, according to a recent Nielsen Company press release. Nielsen is a provider of competitive advertising information.
Credit cards give consumers credit limits that often remain unused. At the end of 2007, only about 24 percent of credit card consumers used debt.
"Between December 1999 and December 2007, revolving debt grew by 50 percent, but unused credit card lines made available by creditors grew by 90.4 percent, almost twice as fast," as quoted by Plunkett from VERIBANC Inc. statistics.
Penalty fees are the major profit maker for credit card companies, which amounted to $18 billion in 2007, a 68 percent increase from 2002, when penalty fees amounted to $10.7 billion.
Banking Industry Up in Arms
Banks, on the other hand, argue that the proposed rules are nothing else than price controls aimed to hurt consumers with higher interest rates and less access to cash.
"The Federal Reserve's proposal is an unprecedented regulatory intrusion into market place pricing and product offerings," said Edward Yingling, President and CEO of the American Bankers Association, in a recent press release. "We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards. In short, everyday consumers will bear the real cost of these proposals,"
Hoping to stop unscrupulous credit card practices, Sen. Christopher Dodd (D-Conn.) introduced the Credit Card Accountability, Responsibility and Disclosure or C.A.R.D. Act in late April.
The C.A.R.D. Act "is aimed at stopping credit card practices that drag consumers into staggering amounts of debt, and too often harm, rather than help, the ability of American families to move up the economic ladder," said Senator Dodd in a press release.
Congresswoman Maloney introduced the Credit Cardholder's Bill of Rights earlier this year. The bill calls for protection against illogical interest rate hikes, ambiguous terms and any deceptive practices.
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