New rules restrict credit card abuses

WASHINGTON -- Federal regulators on Thursday adopted sweeping new rules for the credit card industry, including a provision that will shield consumers from increases in interest rates on existing account balances.

The rules, which take effect in July 2010, will allow credit card companies to raise interest rates only on new credit cards and future purchases or advances, rather than on current balances.

The new rules also prohibit:

• Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.

• Unfairly adding security deposits and fees for issuing credit or making it available.

Amid the recession and rising job losses, consumers — even those with strong credit records — have been defaulting at high levels on their credit cards. Banks already battered by the mortgage and credit crises have been bleeding tens of billions in red ink from the losses.

The rules were approved by the Federal Reserve, the Treasury Department's Office of Thrift Supervision and the National Credit Union Administration. The Consumer Federation of America expressed concern that the rules won't take effect until the middle of 2010.

But the changes mark the broadest clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitrary increases in interest rates or inadequate time provided to pay the bills.

"These protections will allow consumers to access credit on terms that are fair and more easily understood," Fed Chairman Ben Bernanke said in a statement

The changes also 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.

In addition, consumers will have to be given 45 days notice before any changes are made to the terms of an account, including slapping on 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.