I think most of us are aware of the underhanded way in which credit card issuers manipulate things to screw customers through charging high fees and interest rates. A lot of this is designed to make it difficult for customers to pay off balances, since much of the minimum payment goes to pay either fees or interest rates and not to reduce the actual balance.
It appears that the Fed is finally considering cracking down on this.
http://www.washingtonpost.com/...
The Federal Reserve on Thursday will vote on sweeping reform of the credit card industry that would ban practices such as retroactively increasing interest rates at will and charging late fees when consumers are not given a reasonable amount of time to make payments.
The Fed, which has been considering the proposed changes since May, declined this week to release details of the final draft regulations. But banking officials and consumer advocates said that they do not expect substantial changes before the vote, especially since members of Congress have pressured the Fed not to water down the rules.
One controversial thing that the credit card companies have done is to jack up the rates on cards even if you aren't late on payments. You might be late on a 2nd card, but the issuer of the 1st card finds out and they jack the rate on you.
Evidently this is one practice that the Fed intends to put an end to:
Among the many provisions is a ban on raising interest rates on existing balances unless the customer was 30 days or more late in paying the minimum. Other circumstances in which a rate change would be allowed would be if the card had a variable rate or a promotional rate that was set to expire. Banks would also not be able to treat a payment as late if the customer had not been given a fair amount of time to make that payment.
Offhand I don't know why it is that the Fed has decided to act at this time, but on the whole the new rules that they are considering appear to be a big step in the right direction in that it would make it easier for customers to pay down their debts.
Update:
Here is a link to the Fed website that describes the actual changes that they are considering:
http://www.federalreserve.gov/...
given that this is a press release from the Government, I don't think there are any issues with quoting the entire text:
The Federal Reserve Board on Friday proposed rules to prohibit unfair practices regarding credit cards and overdraft services that would, among other provisions, protect consumers from unexpected increases in the rate charged on pre-existing credit card balances.
The rules, proposed for public comment under the Federal Trade Commission Act (FTC Act), also would forbid banks from imposing interest charges using the "two-cycle" billing method, would require that consumers receive a reasonable amount of time to make their credit card payments, and would prohibit the use of payment allocation methods that unfairly maximize interest charges. They also include protections for consumers that use overdraft services offered by their bank.
"The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate," said Federal Reserve Chairman Ben S. Bernanke. "Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs."
The proposed changes to the Board’s Regulation AA (Unfair or Deceptive Acts or Practices) would be complemented by separate proposals that the Board is issuing under the Truth in Lending Act (Regulation Z) and the Truth in Savings Act (Regulation DD).
The provisions addressing credit card practices are part of the Board’s ongoing effort to enhance protections for consumers who use credit cards, and follow the Board's 2007 proposal to improve the credit card disclosures under the Truth in Lending Act. The FTC Act proposal includes five key protections for consumers that use credit cards:
- Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.
- Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.
- Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.
- Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.
- Banks would be required to provide consumers a reasonable amount of time to make payments.
The proposal would also address subprime credit cards by limiting the fees that reduce the available credit. In addition, banks that make firm offers of credit advertising multiple rates or credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.
"Unfair practices can impose significant costs on credit card users," said Federal Reserve Board Governor Randall S. Kroszner. "The new proposed rules would provide the benefit of substantial protection against practices that can harm consumers."
The Board's proposal under the FTC Act also addresses acts or practices in connection with a bank’s payment of overdrafts on a deposit account, whether the overdraft is created by check, a withdrawal at an automated teller machine, a debit card purchase, or other transactions. The proposal requires institutions to provide consumers with notice and an opportunity to opt out of the payment of overdrafts, before any overdraft fees or charges may be imposed on consumers' accounts.
To ensure that consumers enjoy the same protections regardless of the institution from which they obtain a credit card or receive overdraft protection, the Board's FTC Act proposal is issued concurrently with substantively similar proposals by the Office of Thrift Supervision and the National Credit Union Administration that would apply, respectively, to savings associations and federally-chartered credit unions.
All three Federal Register notices are attached. In light of the significance of the issues raised, the comment period for the FTC Act proposal ends seventy-five days after publication of the proposal in the Federal Register, while the comment periods for the Regulation Z and DD proposals end sixty days after publication. Publication of each of the proposals is expected shortly.