Proposed Regulations for the Credit Card Industry: Do They Go Far Enough?

Posted On: July 27, 2007

By Curtis Arnold, Founder of CardRatings.com

In late May, the Federal Reserve came out with its proposals for changing the rules that the credit card industry must follow. The goal, according to Federal Reserve Board Chairman Ben S. Bernanke:

“… is to make sure that consumers get key information about credit card terms in a clear and conspicuous format and at a time when it would be most useful to them … . Greater clarity in credit disclosures allows consumers to make more informed credit decisions and enhances competition among credit card issuers.”

The proposed changes primarily focus on how information is disclosed to us – how it should look, when we should receive it, and what we must be told.

Three Examples

1. The interest rates and fees would be clearer and easier to comprehend. Under the Fed’s proposal, whether it’s on an application, a credit card offer, or a statement, some of that fine print will actually have to be in a larger type-face, with key rates and terms in bold-face. Also, the details on penalty rates would be highlighted. In other words, it would be clearer that you’ll be hit with a penalty rate if you pay late.

2. Issuers would have to give us more time. The Fed wants lenders to give us 45 days notice – instead of the current 15 – before they make changes to the terms of card agreements. That way, we’d have more time to pursue other options. Fixed-rate credit cards would have to come with a guaranteed rate for a specific amount of time. Believe it or not, the way the regs now read, credit card issuers only have to give us 15 days notice before they hike the interest up on fixed-rate cards.

3. Credit card bills would have to be a lot clearer. We’d be able to better see how much we are being charged for what, be it in interest or in fees. Lenders will have to show how they allocate payments, what the effect of that will be, and even where you should go for consumer education – to the Fed’s own website!

Perhaps the most interesting of the Fed’s proposed changes is that it wants lenders to have to show how much it will cost if you only send in the required monthly minimum amounts. They would also have to show how long it would take to get out from under paying only the minimums.

Do They Go Far Enough?

The consensus among consumer advocates seems to be that the proposals are okay … as far as they go. But they don’t go far enough, especially when it comes to some of the most consumer-unfriendly of the credit card industry’s practices. It would have been great, for example, if the Fed had proposed an end to the practice of universal default, where if you’re late on one bill, lenders can raise your rates way up on all your other accounts.

Another key industry practice that would be left unchanged under these rules allows card issuers to charge the new sky-high rate on your already existing balances, even though they had already lent you that money at the old rate.

For more on what consumer advocates and even some card issuers have to say, I recommend Kathy M. Kristof’s excellent article in the Los Angeles Times, where she interviews many experts. Please check out the proposed regs as well, and then you can tell the Federal Reserve what you think of them. Please express your thoughts on our forum as well!

This article was originally published on CreditBloggers.com by Curtis Arnold, a nationally recognized consumer educator and advocate. Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues. Curtis is currently working on publishing a book about credit card usage with Pearson/Prentice Hall- more details forthcoming!

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