Feds adopt rules to crack down on some credit card abuses
— -- In the most sweeping changes to credit cards in decades, federal regulators on Thursday approved new rules to crack down on so-called unfair and deceptive practices by card issuers, such as raising interest rates on existing debt.
The rules, approved Thursday by the Office of Thrift Supervision, the Federal Reserve and the National Credit Union Administration, come at a time when the economy has plunged into recession, and loan delinquencies and charge-offs are swelling as borrowers struggle to pay their bills.
The rules, which take effect in July 2010, will let credit card companies raise interest rates only on new credit cards and future purchases or advances, rather than on current balances.
They also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates.
In addition, consumers will have to be given 45 days notice before any changes are made to the terms of an account, including a higher penalty rate for missing payments or paying bills late. Under current rules, companies in most cases give 15 days notice before making certain changes to the terms of an account.
The rules were approved Thursday morning by the OTS, a Treasury Department division.
John Reich, the agency's director, says the rules "will enhance public confidence in financial institutions and establish a level playing field for institutions that want to do business fairly without suffering competitive disadvantages."
Most of the rules were proposed in May and drew more than 65,000 public comments — the highest number ever received by the Fed.
The changes could make it more difficult for millions of people with bad credit to get what is known as a subprime card, carrying higher interest rates, some experts say.
The changes also could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.
The OTS led regulators' efforts to reform credit cards when, in August 2007, it asked for public comment about financial institutions' lending practices. Banks have opposed the restrictions, especially in a rocky economy, saying that they will likely cause lenders to reduce credit and raise costs.
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