Fed to Vote on Credit Card Reform
This week, credit cardholders could receive two gifts from the Federal Reserve: another rate cut on Tuesday and credit card regulation on Thursday, when the Fed votes on credit card reform.
"It is a good sign that the Federal Reserve is bringing this for a vote. Overall, these reforms are good for consumers. It is about time some of these punitive practices are eliminated," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "These credit card reforms have been a very slow process. The Federal Reserve started talking about some of these reforms in May. It has taken this long to get to a vote and may take quite some time for any changes to
be enacted that would benefit the cardholder,"
Any reform will need the approval of the Federal Reserve, the office of Thrift Supervision, and the National Credit Union Administration.
Here are a few of the reforms that may be approved on Thursday:
* Easier to read tables in monthly statements.
* Ban on raising interest rates on existing balances unless the customer was at least 30 days late in paying the minimum.
* Elimination of the universal default policy.
* Elimination of double-cycle billing.
* If payment exceeds the minimum payment, prohibit banks from first applying entire amount to that part of the balance with lowest rates.
While these reforms are good for consumers, cardholders may pay a higher price for them according to the banking industry. These changes may mean a loss of interest and fee revenue for issuers and financial institutions at a critical time when many of the largest banks are struggling to survive. Issuers warn this may lead to an increase in rates for many cardholders as well as a decrease in credit limits.
Congress and the Federal Reserve are both pursuing changes in credit card practices. The House of Representatives passed H.R. 5244, the Credit Cardholders Bill of Rights, on September 23, 2008. This bill had some similar reforms to the Fed's proposal. This bill has been sent to the Senate.
The Federal Reserve helps supervise and regulate the U.S. banking system. One of its purposes is to protect the credit rights of customers. Many of these consumer protection regulations apply to various lenders outside the banking industry as well as to banks.
"If the Federal Reserve doesn't force reforms with regulations, a Democratic
Congress seems ready to step in with legislation," says Hardekopf.
"It is a good sign that the Federal Reserve is bringing this for a vote. Overall, these reforms are good for consumers. It is about time some of these punitive practices are eliminated," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "These credit card reforms have been a very slow process. The Federal Reserve started talking about some of these reforms in May. It has taken this long to get to a vote and may take quite some time for any changes to
be enacted that would benefit the cardholder,"
Any reform will need the approval of the Federal Reserve, the office of Thrift Supervision, and the National Credit Union Administration.
Here are a few of the reforms that may be approved on Thursday:
* Easier to read tables in monthly statements.
* Ban on raising interest rates on existing balances unless the customer was at least 30 days late in paying the minimum.
* Elimination of the universal default policy.
* Elimination of double-cycle billing.
* If payment exceeds the minimum payment, prohibit banks from first applying entire amount to that part of the balance with lowest rates.
While these reforms are good for consumers, cardholders may pay a higher price for them according to the banking industry. These changes may mean a loss of interest and fee revenue for issuers and financial institutions at a critical time when many of the largest banks are struggling to survive. Issuers warn this may lead to an increase in rates for many cardholders as well as a decrease in credit limits.
Congress and the Federal Reserve are both pursuing changes in credit card practices. The House of Representatives passed H.R. 5244, the Credit Cardholders Bill of Rights, on September 23, 2008. This bill had some similar reforms to the Fed's proposal. This bill has been sent to the Senate.
The Federal Reserve helps supervise and regulate the U.S. banking system. One of its purposes is to protect the credit rights of customers. Many of these consumer protection regulations apply to various lenders outside the banking industry as well as to banks.
"If the Federal Reserve doesn't force reforms with regulations, a Democratic
Congress seems ready to step in with legislation," says Hardekopf.
