Federal Reserve pushes forward with new credit card rules
On Friday, the Federal Reserve pushed forward with proposed new rules to stop abusive and unfair credit card practices used by credit card issuers. The move comes as regulators and legislators face increasing pressure to curb practices that cause unexpected interest rate increases on existing credit card balances.
The proposed rules would prevent banks and credit card issuers from using the “two-cycle” billing method, allow consumers more time to make their payments, raising interest rates on existing credit card balances and prohibit the use of payment allocation based on applying payments to lower interest rate balances first.
“The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” said Federal Reserve Chairman Ben S. Bernanke. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”
Limiting fees on subprime credit cards is also part of the proposal made by the Federal Reserve. Banks and credit card issuers that advertise credit under multiple rate and offerings must also disclose the terms under which consumers would qualify for the lowest interest rate and highest credit limit. These proposed rules come as the Federal Reserve tries to enhance its 2007 proposal to improve credit card disclosure under the Truth in Lending Act.
“Unfair practices can impose significant costs on credit card users,” said Federal Reserve Board Governor Randall S. Kroszner. “The new proposed rules would provide the benefit of substantial protection against practices that can harm consumers.”
The new rules are open for public comment for 75 days and the adopted rules are expected to be put in place by the end of this year.
For more information and to view the full Federal Reserve press release, visit here.
