Dec. 18, 2008
Feds Take Swipe At Credit Card Rules
Regulators OK Sweeping Changes That Will Limit Interest Rate Hikes By Card Companies
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Play CBS Video Video 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.
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Video Credit Card Changes Ahead Randall Pinkston reports that bank regulators have established new rules for credit card companies who wish to raise interest rates for card users.
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(iStockphoto)
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Timeline Credit Crunch Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
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.
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Sen. Carl Levin, D-Mich., said the new rules "are a good first step, but they don't prevent a number of unfair, deceptive and predatory practices that saddle many American families with crushing debt."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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- Speak, the only problem with your logic is what happens in 10 more years when the Fed has increased inflation so much again so the rich get richer and the middle class get less and less because everything is priced out of their reach because of inflation. You know the middle class''s pay is not going to increase, hell, the government wants Unions to dissolve so they don''t have to pay the workers so much so the executives can make more money. You don''t hear about the entirety of white collar jobs taking pay cuts, just job losses. Credit and inflation creates a class of debtors, not middle class, and as a nation of debtors, anyone in debt is subject to jail, creating a nation exactly like Stalin''s Russia where anyone can be sent to jail for anything, like not wearing your seatbelt, or smoking in a bar.
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- ""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. ""
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! - Reply to this comment
- I have AAA credit but one of my credit card companies just hiked my card rate up to 14.99%. The reason?
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. - Reply to this comment
- Finally!!
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. - Reply to this comment
- You say you got rid of your credit cards.
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. - Reply to this comment
- Stop using credit cards.Period. That will fix them! I have and I''m so much happier.
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- These pieces of scum will find other ways to recoup their losses. They will add fees and find ways to rape the public some more. They are dishonest people who prey on people in bad situations. If I can''t pay for it with my debit card, we aren''t gettin'' it. Emergencies are funded out of an emergency savings fund. We filed bankruptcy and never touched a credit card again. They are poison.
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- I love how the article says ''credit card companies have to warn you first before raising your rates''...duh.
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. - Reply to this comment
- WHY 2010? Why not tomorrow afternoon?
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- It is about time......someone steps up and and takes notice and action of the crooked and unfair operations of the credit card industry. The action to enforce the rules needs to occur now. Not 18 months from now in July 2010. Kind of funny how when the consumer gets penalized or their interest rate is increased for no apparent reason and how it happens right away. Why are we giving the credit card companies time? They should be penalized and required to obey these new rules immediately....too bad if they suffer losses..........they are too greedy in the first place............they contribute to the mismanagement and over use of credit cards. I mostly use my credit cards for emergengies or new tires or repairs for my home that my current budget cannot handle and have been victimized like most everyone else of the high interest increase while maintaining on time payments, paying minimum or more and paying on time...........They need to be fined or return customers money they have paid unnecessarily in interest over the years........right like that''s gonna happen........
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- To irkulyen77:
You say you got rid of your credit cards.
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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I use checks, debit cards and cash. Yes it is inconvenient but the credit card baron robbers don%u2019t have their hooks in me. It%u2019s just my way of giving THEM the shaft. - Reply to this comment
- Try using a debit card to rent a car. I dare you.
I have, and succeeded. Last month in Germany, and a year and a half ago in Boston. Using a debit card from a US bank.
And there''s no real reason for the credit card issuing banks to worry. They have a year and a half to figure out profitable ways around the new rules. It''s true that a good chunk of the problem is people trying to live beyond their needs, but that was also one of the main reasons for the housing and mortgage crisis we''re going through. And the banks managed to turn that into a gold mine by issuing loans for amounts the house buyers would never be able to repay.
If the banks actually face a loss of profits when this one comes home to roost, all they have to do is rent some more high powered lobbyists and Congress will bail them out. With our money, of course... - Reply to this comment
- Maybe this is a good time to just make credit cards illegal. Zero everyone''s debt with their various cards across the board.
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- endrepubs -
Keep believing that its my goal in life to convince you of anything... - Reply to this comment
- EndRepubs --
The vast majority of individuals in this country use credit cards so they can buy what they cant afford NOW. Using a credit card to rent a car is a convenience. I have used cash to rent cars in the past with a check as a deposit to cover any damage costs. Worked out fine for me. - Reply to this comment
- To irkulyen77:
You say you got rid of your credit cards.
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?
Debit cards and secured credit cards are viable and often used alternatives to credit cards. Again, credit cards are not a right, they are a convenience, the choice to use them is up to the holder. It is also the choice of the holder to charge more than they can pay in any one given month. - Reply to this comment
- This credit card rule change won''t take effect until 2010....I''ll probably be dead by then.
Message to the American citizens.....don''t use your credit cards. Don''t use them anymore to buy Christmas presents. Santa will thank you. The bank and credit union''s that change your rates even when you pay in full or make your payments on time should be run out of business immediately.
What a scam on the American public... - Reply to this comment
- How many new revisions to the original agreement will be made in the next 20 months before the rules kick in. I got my credit cards years before the co-conspirators in congress got in bed with the banks. Every change since has been made to protect the thieving banks and to stick it to the consumer.
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- Hmmm...
The changes should happen immediately.
I had a CHASE card. My balance was about 15% of the limit at any particular time. I always paid on time, and in full, each and every month.
One day, mail arrived from CHASE saying that I had too many credit cards (9), and, therefore, they were raising my interest rate from something like 9% to 24.9%... even though I had a perfect payment record with them, and all of my other credit cards.
Paid them off and cancelled my card at the next billing cycle. Good riddance. The federal government should sue them for false advertising.
Credit card companies can arbitrarily change the terms and conditions at any time, and that is buried somewhere in the fine print that 99.989% of the people do not read, but agree to in order to get the card.
The past two months, many credit card companies have seen fit to raise interest rates on good customers, and in most cases, without merit.
Someone should put a stop to this crappola now, not next month. - Reply to this comment
- The Fed has announced that it is finally doing something about the "extortion" interest rates charged on credit cards.
Unfortunately, the rules won''t take effect until 2010 which gives banks an entire year to come up with new ways to SHAFT credit card customers which the Fed hasn''t thought of yet.
Among the new fees being considered by the GREEEEDY banking industry are:
1. Charging customers a monthly fee for NOT having a credit card.
2. Adding a monthly 10% "PERK" Fee for the benefit of the bank''S corporate executives.
3. Charging passer-bys a fee for simply walking or driving past the bank.
4. Charging customers a $100 fee for being mugged at the bank''s ATM!
5. Add a "parking surcharge" to all customers using the bank drive-thru.
SIG HEIL, EXTORTION IS GOOOOD!!!!, BUSH!!! - Reply to this comment
