Do the Fed’s Proposed Changes in Credit Cards Go Far Enough?
On Friday, the Federal Reserve released its proposal for prohibiting unfair practices by credit card issuers. The provisions include:
* Prohibiting banks from applying payments above the minimum in a way that maximizes interest charges.
*Prohibiting banks from increasing the annual percentage rate on an outstanding balance unless certain circumstances apply.
* Consumers must be allowed to pay off the balance over a reasonable period of time.
* Prohibiting banks from imposing interest charges using the “two-cycle” method.
* Limiting the fees charged by subprime cards that reduce the available credit.
These changes are very positive for credit card consumers. Some of these practices were unfairly penalizing consumers that carry a balance on their account.
While this is a tremendous step in the right direction, there are three additional changes that could be made which would also benefit consumers. First, credit card Terms and Conditions need to be written in a way that most people can understand. Second, consumers need to be clearly informed of any proposed changes to their credit card rates and fees with 45 days notice. Third, issuers should be prohibited from charging interest rates on fees.
It will be interesting to see which of these provisions survive the process to become regulations that are passed by the Federal Reserve. The banks are likely to strongly protest the changes and try to dilute them or remove them altogether. Many of these provisions are the focus of both the Federal Reserve and Congress. This means there is a good chance that some of these suggested changes will actually stick. This is also an election year, and right now cardholders have the attention of the Federal Reserve and Congress. This is a good time for consumers to contact both to give their opinion about these proposals. However, even with this scrutiny of credit cards and attention to unfair practices, don’t expect immediate changes. The process takes a long time and it may be at least a year before consumers actually see these changes take effect on their account.