Feds Take Swipe At Credit Card Rules
Regulators OK Sweeping Changes That Will Limit Interest Rate Hikes By Card Companies
119Dec. 18, 2008
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Credit Card Interest Rate Jump
As the economic crisis continues, credit card interest rates are rising dramatically for many consumers who may not even be aware of the increases. Mark Strassmann reports. | Share/Embed
Credit Card Interest Rate Jump (2:08)
Credit Card Changes Ahead (2:02)
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Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
(CBS/AP) Federal regulators on Thursday adopted sweeping new rules for the credit card industry that will shield consumers from increases in interest rates on existing account balances among other changes.
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.
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 changes mark the most sweeping clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitrary hikes in interest rates or inadequate time provided to pay the bills.
"The revised rules represent the most comprehensive and sweeping reforms ever adopted by the (Federal Reserve) for credit card accounts," Fed Chairman Ben Bernanke said in a statement. "These protections will allow consumers to access credit on terms that are fair and more easily understood."
Most of the rules were first proposed in May and drew more than 65,000 public comments - the highest number ever received by the Fed. They also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates.
But 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.
Until the new rules take effect in 2010, CBS News correspondent Randall Pinkston reports that companies are expected to continue slashing credit limits and hiking rates on many consumers - people like Maria Polk.
Despite always paying on time, the interest rates on Polk's cards just skyrocketed to almost 30 percent, reports Pinkston.
"I would be better off going to the mob for money," she said.
Consumer advocates say the change should take effect sooner and the new rules do nothing at all about those extremely high fees on credit cards, Pinkston adds.
Under the new rules, 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.
The changes could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.
Roughly 16,000 companies in the U.S. issue credit cards. The biggest lenders include Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings.Finance expert Jordan Goodman tells CBS' The Early Show what the credit card changes will mean to you.
I would be better off going to the mob for money.
Maria Polk, credit card holder
"Every day the taxpayer is being asked to foot the bill for our biggest banks' irresponsible lending practices," Levin said in a statement. "America's banking giants can't be allowed to dig themselves out of the hole they are in by loading up American families with unfair fees and interest charges."
Levin and Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, have proposed stringent legislation to change credit card practices.
The head of the American Bankers Association said the changes "signal the beginning of a new market structure for credit cards."
"While the new rules are designed to increase protections for consumers, the Fed itself has recognized that they may result in increased costs for most card users and reduced credit availability, particularly for consumers with lower credit scores or limited credit history," ABA President and Chief Executive Edward Yingling said in a statement. "With the uncertainty facing our financial system, it's absolutely vital for policymakers to understand the full impact of these regulations on consumers and the economy before judging their success or further restricting the marketplace."
The Consumer Federation of America welcomed the new rules but expressed concern that they won't take effect until the middle of 2010. The group called on Congress to provide additional consumer protections to rein in abuses it said weren't addressed by the regulators.
The new rules prohibit:
Under the new rules, credit card lenders will be required to apply any payment above the minimum to the part of the balance with the highest interest rate.
The so-called subprime cards for people with low credit scores typically have no more than a $500 credit limit but require a large upfront fee.
The rules cap that fee at 50 percent of the credit limit and allow the cardholder to pay off the initial balance over a year, not immediately.
The Consumer Federation estimates that credit card debt held by U.S. consumers is about $850 billion, some four times what it was in 1990.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
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Good!!! If you have bad credit, you have NO business with credit cards. It''s likely that credit cards and other loans are how you got bad credit in the first place. And if not, you sure don''t need the "help" that subprime cards will give you!
They said I had too many credit cards with too high limits and that was a risk. I''ve never defaulted or been late--always pay a minimum of at least 300.00 or more above the minimum (avg payments of 1000.00/month) no matter what, the cc companies are determined to get their pound of flesh.
This card? Will be frozen, paid off and Wells Fargo can go fvck themselves in the future. Exellent credit these days means nothing.
You can be penalized for having too much credit, or for stores or anyone else making too many inquiries within a 6 month period. Then they can raise your rates and you have no say--not for bad credit--but in this case--too much credit and/or inquiries. Think about THAT before agreeing to open a dept. store account to get 15% off your purchase.
The supreme court ruled in past that if Credit Card can have usury rates in one state, they can do it an any other state. Citi found this loop and others followed.
Outlaw them nation wide and they have no leg to stand on.
How do you fly an airplane or rent a car or stay in a hotel among other things. You know a credit card is required for many things. So how do you do it? Or do you stay home 100% of the time? - Variant
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Alamo rent-a-car will allow you to use a debit card to rent a car if you show proof of your flight (ticket). And many hotels take debit cards.
Just ask. Most are happy to tell you their policies up front.
And what good does that do anyone?
You are still going to have your rates raised.
Glad I don''t use credit cards and never will.
Posted by a_witness at 04:17 PM : Dec 18, 2008
Why, it is your choice to have this interest why should other Taxpayers foot the bill for you NUMBNUTS.