<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published December 20, 2008
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Fed bans deceptive credit-card practices
Companies will be restricted in their ability to raise rates for borrowers deemed increasingly risky
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(New York)
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</TD></TR><TR class=caption><TD>MR BERNANKE
'The revised rules represent the most comprehensive and sweeping reforms ever adopted by the board for credit card accounts.'</TD></TR></TBODY></TABLE>THE Federal Reserve and other bank regulators are cracking down on 'unfair or deceptive' credit-card practices, including fees and interest-rate increases blamed for pushing Americans deeper into debt.
The central bank adopted rules that limit rate increases on existing balances and require lenders to give consumers a reasonable time to pay. The National Credit Union Administration (NCUA) and the Office of Thrift Supervision (OTS) adopted the same rules, which an industry group said will raise borrowing costs. The new lending policy takes effect in July 2010.
'The revised rules represent the most comprehensive and sweeping reforms ever adopted by the board for credit card accounts,' Fed chairman Ben S Bernanke said before the vote at the Fed's Washington headquarters on Thursday.
The action, in response to criticism in Congress that regulators failed to rein in abusive credit- card and mortgage lending practices, prompted further calls for legislation to protect consumers.
The House this year approved credit-card legislation introduced by Representative Carolyn Maloney, a New York Democrat. A Senate Banking Committee version stalled.
'The regulations regrettably leave in place many blatantly unfair credit card practices that mire families in debt,' Senator Carl Levin, a Michigan Democrat and chairman of the Homeland Security Committee investigations panel, said in a statement.
'Legislation is needed to stop abuses,' such as charging interest on debt that was paid on time, he said.
House Financial Service Committee chairman Barney Frank has said legislation is necessary 'even if they do everything we like' because 'what's done by regulation can be undone by regulation'. The requirements will raise costs, said Nessa Feddis, vice-president and senior counsel at the American Bankers Association, a Washington-based industry group.
'The card companies will basically have to dismantle their existing business model and rebuild it based on new risk and price models,' Ms Feddis said on Thursday in a telephone interview.
Companies including American Express Co, Discover Financial Services and Citigroup Inc will be restricted in their ability to raise rates for borrowers deemed increasingly risky, forcing them to shift those costs to more creditworthy borrowers, Ms Feddis added.
'For those consumers who are able to keep up with their payments every single month, it's going to make a huge difference,' Gail Hillebrand, a senior attorney at the Consumers Union, said in a telephone interview. 'You pay the rate that you were promised.'
The rules ban lenders from increasing annual percentage rates 'unless expressly permitted'. They may increase a rate on existing balances when payments are more than 30 days late and must provide 45-days' notice to increase the rate on new transactions.
The rules ban companies from applying payments strictly to the balance with the lowest rate first on accounts with multiple balances that carry different interest rates. The rules also ban so-called double-cycle billing, when a lender imposes finance charges based on balances from previous periods.
'We believe that this rule does strike the right balance,' Montrice Yakimov, OTS' managing director of compliance and consumer protection, said on Thursday in an interview with Bloomberg Television. 'You'll have consumers receiving credit with terms that they can afford.'
The rules represent a 'major sea change' among US bank regulators towards consumer protection, Ms Yakimov said.
The agencies developed the rules using authority under the Federal Trade Commission Act to ban 'unfair or deceptive acts or practices'. The Fed rules cover banks, the NCUA rules govern credit unions and the OTS rules apply to savings and loans.
Separately, the Fed approved rules that require companies to clarify the terms in credit-card offers and statements to make them easier for consumers to understand. -- Bloomberg
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Fed bans deceptive credit-card practices
Companies will be restricted in their ability to raise rates for borrowers deemed increasingly risky
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20>
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</TD></TR><TR class=caption><TD>MR BERNANKE'The revised rules represent the most comprehensive and sweeping reforms ever adopted by the board for credit card accounts.'</TD></TR></TBODY></TABLE>THE Federal Reserve and other bank regulators are cracking down on 'unfair or deceptive' credit-card practices, including fees and interest-rate increases blamed for pushing Americans deeper into debt.
The central bank adopted rules that limit rate increases on existing balances and require lenders to give consumers a reasonable time to pay. The National Credit Union Administration (NCUA) and the Office of Thrift Supervision (OTS) adopted the same rules, which an industry group said will raise borrowing costs. The new lending policy takes effect in July 2010.
'The revised rules represent the most comprehensive and sweeping reforms ever adopted by the board for credit card accounts,' Fed chairman Ben S Bernanke said before the vote at the Fed's Washington headquarters on Thursday.
The action, in response to criticism in Congress that regulators failed to rein in abusive credit- card and mortgage lending practices, prompted further calls for legislation to protect consumers.
The House this year approved credit-card legislation introduced by Representative Carolyn Maloney, a New York Democrat. A Senate Banking Committee version stalled.
'The regulations regrettably leave in place many blatantly unfair credit card practices that mire families in debt,' Senator Carl Levin, a Michigan Democrat and chairman of the Homeland Security Committee investigations panel, said in a statement.
'Legislation is needed to stop abuses,' such as charging interest on debt that was paid on time, he said.
House Financial Service Committee chairman Barney Frank has said legislation is necessary 'even if they do everything we like' because 'what's done by regulation can be undone by regulation'. The requirements will raise costs, said Nessa Feddis, vice-president and senior counsel at the American Bankers Association, a Washington-based industry group.
'The card companies will basically have to dismantle their existing business model and rebuild it based on new risk and price models,' Ms Feddis said on Thursday in a telephone interview.
Companies including American Express Co, Discover Financial Services and Citigroup Inc will be restricted in their ability to raise rates for borrowers deemed increasingly risky, forcing them to shift those costs to more creditworthy borrowers, Ms Feddis added.
'For those consumers who are able to keep up with their payments every single month, it's going to make a huge difference,' Gail Hillebrand, a senior attorney at the Consumers Union, said in a telephone interview. 'You pay the rate that you were promised.'
The rules ban lenders from increasing annual percentage rates 'unless expressly permitted'. They may increase a rate on existing balances when payments are more than 30 days late and must provide 45-days' notice to increase the rate on new transactions.
The rules ban companies from applying payments strictly to the balance with the lowest rate first on accounts with multiple balances that carry different interest rates. The rules also ban so-called double-cycle billing, when a lender imposes finance charges based on balances from previous periods.
'We believe that this rule does strike the right balance,' Montrice Yakimov, OTS' managing director of compliance and consumer protection, said on Thursday in an interview with Bloomberg Television. 'You'll have consumers receiving credit with terms that they can afford.'
The rules represent a 'major sea change' among US bank regulators towards consumer protection, Ms Yakimov said.
The agencies developed the rules using authority under the Federal Trade Commission Act to ban 'unfair or deceptive acts or practices'. The Fed rules cover banks, the NCUA rules govern credit unions and the OTS rules apply to savings and loans.
Separately, the Fed approved rules that require companies to clarify the terms in credit-card offers and statements to make them easier for consumers to understand. -- Bloomberg
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