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.
Experts say it is a good sign that the Federal Reserve is bringing this for a vote, and it is about time some of these punitive practices are eliminated. These reforms are good for consumers, but credit card reforms have been a very slow process.
The Federal Reserve began discussing reforms in May. The efforts have been prolonged 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 benefit consumers, cardholders may in turn pay a higher price for them according to the banking industry, experts say. 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, and one one of its purposes is to protect consumer credit rights. Many of these consumer protection regulations apply to various lenders outside the banking industry as well as to banks.
Experts say that if the Federal Reserve does not force reforms with regulations, a Democratic Congress seems ready to step in with legislation.