Fed Cracks Down On "Unfair" Credit Cards

Politicians Praise Biggest Industry Clampdown In Decades, Others Wonder If It Goes Far Enough

(CBS/AP)  The Federal Reserve and other regulators initiated steps Friday to end "unfair and deceptive" credit card industry practices assailing consumers who are already struggling to cope in a bad economy.

The proposed rules would be the biggest clampdown on the industry in decades, aiming at protecting people from credit card companies that arbitrarily raise interest rates or don't give borrowers adequate time to pay their bills.

The proposals would also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. The Fed board voted Friday to approve the recommendations.

Federal Reserve Chairman Ben Bernanke said the proposed rules "are intended to establish a new baseline for fairness in how credit card plans operate." Consumers using credit cards "should be better able to predict how their decisions and actions will affect their costs," he said.

"For markets to work, people have to understand what it is they're buying and paying for and if they do they can make better choices and the market will work better," Bernanke said.

The new rules would ban unfair or deceptive tactics, like mailing out bills less than 3 weeks before the due date so there's not enough time to pay, or jacking up the interest rate even for people who pay on time - and then applying that interest to the pre-existing balance.

That's exactly what happened to Dennis English. A trucker in Augusta, Georgia whose rate on his $10,000 balance suddenly jumped.

"It started out at 9.9 percent interest rate and last month when I went to pay my bill I happened to notice that it went up to 32.99 percent," English told CBS News Correspondent Nancy Cordes.

"I explained to them that I have never been late on a payment, I have never missed a payment, I never have been overdrawn on the account," English told CBS News. "And they said, unfortunately, they was nothing they could do about it."

Lawmakers who have demanded tougher controls on the credit card industry were generally positive about the proposed rules, as were consumer groups. But some questioned whether the changes would be strong enough and soon enough to help the millions of households struggling with credit card debt.

The Fed drew considerable criticism for its slow response to abuses that contributed to the subprime mortgage crisis.

"These steps are a significant improvement," said Sen. Charles Schumer, D-N.Y., a member of the Banking Committee and a leader in legislative efforts to make credit card companies more forthcoming about the interest rates they charge. "While they can still go further, the Fed deserves credit for acting, particularly for banning some awful practices rather than relying solely on disclosure."

Last year the Fed proposed rules that would make credit card bills and solicitations easier to understand, but Friday's proposals go well beyond those in tightening interactions between the industry and consumers.

"At first blush, this does seem to be good news for credit card holders," said Sen. Robert Menendez, D-N.J., author of pending legislation addressing some of the same credit card abuse issues. "However, it remains to be seen if these proposals will go far enough."

"The problems are mounting and the last thing consumers need is to have credit card companies ripping them off with late fees and charges through no fault of the consumer at all," said Senate Banking Committee Chairman Christopher Dodd, D-Conn., who is also pushing reform legislation.

The banking industry opposes the changes, and says they could lead to higher interest rates. The rules could be finalized by the end of the year.

The proposed new rules would 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 allocating payments among balances with different interest rates, with lenders crediting payments to balances with lower rates so they can continue to charge interest for balances at higher rates;
  
• Retroactively raising interest rates on pre-existing balances;
  
• Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account;
  
• Unfairly computing balances in a computing tactic known as double-cycle billing;
  
• Unfairly adding security deposits and fees for issuing credit or making credit available;
  
• Making deceptive offers of credit.

The agencies said the proposed rules also would require federal credit unions to give consumers a chance to opt out of an overdraft protection program. And they would prohibit those institutions from charging a fee for an overdraft caused by a hold placed on consumer's funds when a person uses a debit card.

So are the new rules going to help? Travis Plunkett, Legislative Director of the Consumer Federation of America, says yes.

"It's going to help because some of these practices - we call them traps and tricks, hidden traps and tricks - drive up the amount of money that people owe their credit card companies, often very suddenly," Plubkett told CBS Early Show anchor Susan Koeppen. "You haven't budgeted for these payments, and then you wake up one day, you open your credit card bill, and your interest rate has tripled."

One of the biggest unfair practices that Plunkett accuses credit card companies of using is universal default. "What that means is that you're paying your bill on time, you are paying at least the minimum payment, you are meeting your obligations, and your credit card company decides that you are a higher credit risk and sharply increases your interest rate because of the supposed problem with another creditor," Plunkett said. "Many people don't think it's fair. It's simply not fair. It's not even fair from a business point of view, because in many cases the credit risk, as they say, for these people has not increased at all."

[keithle1]

Women love using plastic. Anything to avoid using dirty cash. Eeeeeeewwwww. They live to shop. Always new clothes, shoes, handbags, lingerie, perfume, jewelry, makeup, etc, to buy not to mention hairdressers, spa visits & nail salons. It never ends with women. They want to look like Beyonce on $60,000
a year.

The Mafia has a lot to learn from credit card companies. Amazing what they get away with. Pay in cash. Screw them.

[indianmade1]

Credit card companies are not the only ones taking advantage of people. Banks charge non-sufficent fund (NSF)fees on accounts at outragious rates. You can deposit a check in your account, but you can''t touch the money for at least 24 hours, longer if it''s a weekend. However, anyone else can present a check or hold on your account and get your money immediately. Why can''t the bank use the same express checking system to credit your account that businesses can use to debit your account. Credit card companies are not nearly as bad as banks, you expect the credit card companies to rob you blind, but the bank is suppose to protect your money. Ha, the bank keeps their hand in your cookie jar, and takes as much as they want when they want, and all you can do is change banks. That''s if you can find one who hasn''t "heard" about you from the other banks.

[mjvw2]

you mean you have to pay for stuff you buy on credit. What a krock!

[cnutter2]

When my 19 yr old son graduated from High School last year, he made a mistake on his checking account with his debit card. That mistake cost him over $500.00 in NSF fees. He has had a hard time understanding how to use the card... It started out with a debit under $5.00. I think the banks suck. They totally took advantage of him.....

[lochlan-2009]

"The Federal Reserve and other regulators initiated steps Friday to end "unfair and deceptive" credit card industry practices assailing consumers"

So they just allowed it to go on until now?!!!!

[forthepeopl1]

we the people can STOP all in CONGRESS and the WHITEHOUSE with something so easy, and we would not have to fire a shot at anyone to have this REVOLUTION, THATS RIGHT A REVOLUTION IS WHAT IS NEEDED TO STOP THEM ALL IN THEIR TRACKS.

HOW. WE THE PEOPLE DONT WORK OR DO ANYTHING FOR A FEW WEEKS, SEE HOW FAST THEY START DOING SOMETHING FOR AMERICANS, WHEN NO MONEY IS GOING ONTO THE GOVERNEMNT FOR A FEW WEEKS, SEE NO FOOD BEING DRIVEN TO STORES, THIS IS THE ONLY WAY WE AS AMERICANS CAN TAKE OUR COUNTRY BACK.. SO AMERICANS BETTER WAKE UP AND LETS START A COMPLETE BOY-COTT OF WORK..THIS WILL ONLY WORK IF ALL DO IT.

[e-mail]

[oscarez]

"Lawmakers who have demanded tougher controls on the credit card industry were generally positive about the proposed rules, as were consumer groups."

Bush tells the FED; "Throw the fools a bone maybe they will stop complaning". Don''t hold your breath waiting for the Bush administration to implement these new rules.

[nonayabiness]

I hope this doesn''t go the way of the oil company and mortgage company investigations. Apparently nothing came of them.

[nonayabiness]

Another tactic they use is to change the payment address without making it clearly visible to the consumer. The reason for this is, if you do online banking with your bank, to get the consumer to send the payment to the old address, which then has to be sent to the new address, wasting time and causing payments to be late. Beware.

[ahrats]

It''s about time for the government to regulate the credit card industires. They use decepive practiices to get you to take their card then screw with late fees by sending the bill out after the due date or not sending a bill out at all. Oh yea you can pay over the phone with $25-$45 surcharge vs a 41 cent stamp. Of course the low introductory rate 9-10 per cent goes to over 30% after 60 days no matter if your an on time payer or not. Banks are just trying to get their mony back on all the bad loans they made in the housing market. The govenerment has alrady bailed them out but still screws the consumer. If govenrment wants us to send money do not over charge us for doing so. I usually deal in cash not creit cards but you can not rent a car without a credit card.