Federal Reserve Proposes New Credit Card Disclosure Rules
By Justin McHenry
Government officials continue to turn up the heat on credit card companies. After being dragged in front of multiple Congressional hearings and seeing a new bill introduced that would force a plethora of changes to the way they do business, credit card companies today got a kick from the Federal Reserve, which proposed changes to the rate and fee disclosures that card companies provide consumers.
The Fed conducted a number of surveys and focus groups in the recent past, and came up with a list of suggestions that the Board feels would help consumers better understand card terms, as well as give them the opportunity to compare cards more intelligently. Among those suggestions:
- Credit card companies would have to give 45 days notice when making changes to credit card terms, compared to the current 15 days.
- When card terms are changed, card companies would send out notices that clearly spell out what has been changed from the original agreement, versus the common practice today of simply sending out a new document spelling out all the terms and conditions of the card.
- Changes to card terms would be included on the monthly bill itself, versus a separate insert that is often ignored by consumers today.
- Disallow describing cards as “fixed rate” unless a specific time frame is spelled out. Today cards can be called fixed rate but card companies can change the rate with the 15 days notice mentioned above.
- Change disclosure language concerning the rate cardholders would pay if they are late with payments, go over their card limits, or other behaviors that trigger a higher rate. Today this higher rate (which is often over 30%) is called the “default APR.” This would be changed to the “penalty APR.”
- Redesign the “Schumer box,” the large grid-like box that currently shows information such as interest rate, annual fee, days in a billing cycle, etc. to include more information on fees and penalty interest rates, information that today is often described below this box.
All of these changes are proposed amendments to Regulation Z, which came about with the Truth in Lending Act of 1968. The Federal Reserve Board is looking for public comment on the proposed changes, allowing at least 120 days for that process. When final decisions could be expected was not announced, but given the comment period, it would be fall of this year at the earliest.
