Federal Regulators Rein in “Unfair” Credit Card Practices, But New Rules Don’t Apply Until 2010
December 18, 2008 By Justin McHenry
The Office of Thrift Supervision on Thursday became the first federal agency to approve a series of new rules aimed at reining in credit card company practices seen as unfair. (The Federal Reserve and the National Credit Union Administration are expected to follow suit today.) The new rules will ban certain practices, such as raising interest rates on current debt, and force credit card issuers to give consumers more time to pay without penalty. Unfortunately for consumers, the rules will not actually take effect for a year and a half, on July 1, 2010.
Specifically, the new rules will:
- Force issuers to give 45 days notice to consumers when their credit card terms are about to change, including raising of interest rates or card fees. Currently the issuers only have to give 15 days notice.
- Force card issuers to give their customers at least 21 days to pay off balances
- Prohibit card issuers from raising the interest rate on existing balances, unless the customer is over 30 days late with a payment. Issuers could still raise rates on any new debt incurred, but could not apply a higher interest rate retroactively.
- Prohibit issuers from applying payments to lower-interest balances first. This often happens when cardholders transfer balances at 0% or other low numbers. Any future payments go toward paying off that lower interest balance first.
- Prohibit issuers from issuing credit and then charging fees that eat up the complete credit line (a common practice with bad credit, subprime cards). Issuers could only charge upfront fees up to 25% of the available balance, and spread remaining fees over the first 6 months of a consumer having the card.
With approximately 18 months to digest these new rules, it will be interesting to see the reaction from credit card issuers. Will they simply swallow these changes and resign themselves to fewer profits, or will they use this period to strategize about new interest rate structures, higher fees, fewer rewards, and perhaps even the widespread return of the annual fee? While the new rules should protect consumers from being blindsided by sudden rate hikes, they could also result in higher interest rates and higher fees for all credit card users.
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