Federal Reserve Board Wants Changes in Credit Card Industry
Significant changes in the credit card industry now seem to be occurring on a weekly basis.
Last week, two senators introduced the Stop Unfair Practices in Credit Cards Act trying to protect consumers against some of the punitive practices of credit card companies.
On Wednesday, the Federal Reserve Board took steps give consumers more notice when credit card companies want to increase their interest rates.
The changes require the credit card companies to provide 45 days notice (instead of the current 15 days) before any term, such as the interest rate, can be changed to better allow consumers to obtain alternative financing or change their account usage. This includes a 45 day notice before the creditor increases a rate due to the consumer's delinquency or default.
The changes came as a result of research with a variety of consumers. The research found that consumers often do not read inserts mailed in their statements or the fine print on their bills. These proposed changes would also require creditors to make credit-card statements easier to read with better explanations of complicated language such as "grace period" and "effective APR".
"These new changes proposed by the Fed would be helpful to consumers," said Bill Hardekopf, CEO of LowCards.com, a consumer resource website on credit cards. "Credit card companies have been able to increase interest rates without most consumers ever realizing it is taking place. These companies now must give consumers more notice when their rates are increasing. Hopefully, these increases will not slide under the consumer's radar and will lead to greater competition within the industry.
"But these changes by the Federal Reserve Board should not be a substitute for the changes proposed by the Senate bill last week. Those changes were extremely beneficial to consumers. Hopefully, both of these proposed changes will take place in the credit card industry. Then consumers will reap some very significant benefits."
Changes proposed in the Senate under The Stop Unfair Practices in Credit Cards Act included a limit on the interest rate increases that could be imposed; no interest charges for debt paid on time; stopping the practice of retroactively applying rate increases to previously incurred debt; making sure payments are applied to the balance bearing the highest interest rates; and stopping the practice of charging multiple fees for a single instance of exceeding one's credit limit.
On Wednesday, the Fed also proposed:
* Requiring disclosure of the effect of making only the minimum required payment on repayment of balances.
* Permitting advertisements to refer to a rate as "fixed" only if the advertisement specifies a time period for which the rate is fixed and the rate will not increase for any reason during that time. If a time period is not specified, creditors could only use the term "fixed" if the rate cannot be increased while the credit card is open.
"The goal of the proposed revisions 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," said Federal Reserve Board Chairman Ben Bernanke in a statement. "Greater clarity in credit disclosures allows consumers to make more-informed credit decisions and enhances competition among credit card issuers."
Last week, two senators introduced the Stop Unfair Practices in Credit Cards Act trying to protect consumers against some of the punitive practices of credit card companies.
On Wednesday, the Federal Reserve Board took steps give consumers more notice when credit card companies want to increase their interest rates.
The changes require the credit card companies to provide 45 days notice (instead of the current 15 days) before any term, such as the interest rate, can be changed to better allow consumers to obtain alternative financing or change their account usage. This includes a 45 day notice before the creditor increases a rate due to the consumer's delinquency or default.
The changes came as a result of research with a variety of consumers. The research found that consumers often do not read inserts mailed in their statements or the fine print on their bills. These proposed changes would also require creditors to make credit-card statements easier to read with better explanations of complicated language such as "grace period" and "effective APR".
"These new changes proposed by the Fed would be helpful to consumers," said Bill Hardekopf, CEO of LowCards.com, a consumer resource website on credit cards. "Credit card companies have been able to increase interest rates without most consumers ever realizing it is taking place. These companies now must give consumers more notice when their rates are increasing. Hopefully, these increases will not slide under the consumer's radar and will lead to greater competition within the industry.
"But these changes by the Federal Reserve Board should not be a substitute for the changes proposed by the Senate bill last week. Those changes were extremely beneficial to consumers. Hopefully, both of these proposed changes will take place in the credit card industry. Then consumers will reap some very significant benefits."
Changes proposed in the Senate under The Stop Unfair Practices in Credit Cards Act included a limit on the interest rate increases that could be imposed; no interest charges for debt paid on time; stopping the practice of retroactively applying rate increases to previously incurred debt; making sure payments are applied to the balance bearing the highest interest rates; and stopping the practice of charging multiple fees for a single instance of exceeding one's credit limit.
On Wednesday, the Fed also proposed:
* Requiring disclosure of the effect of making only the minimum required payment on repayment of balances.
* Permitting advertisements to refer to a rate as "fixed" only if the advertisement specifies a time period for which the rate is fixed and the rate will not increase for any reason during that time. If a time period is not specified, creditors could only use the term "fixed" if the rate cannot be increased while the credit card is open.
"The goal of the proposed revisions 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," said Federal Reserve Board Chairman Ben Bernanke in a statement. "Greater clarity in credit disclosures allows consumers to make more-informed credit decisions and enhances competition among credit card issuers."
Posted by Lynn at
11:20 PM
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