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Federal bank regulators moved Friday to place new rules on the nation's credit card industry that would make it more difficult for lenders to raise interest rates and would give consumers more time to pay their bills. If enacted, the regulations would be the most sweeping change in decades, offering consumers more protection against late fees and stopping lenders from making credit offers that regulators deem to be deceptive.
"The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate," said Federal Reserve Chairman Ben Bernanke. "Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs." The banking industry promised a fight, saying the regulations would hurt consumers. "The Federal Reserve's proposal is an unprecedented regulatory intrusion into marketplace pricing and product offerings," said Edward Yingling, president and chief executive of the American Banking Association. "We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards. In short, everyday consumers will bear the real cost of these proposals." Charlotte-based Bank of America is the country's largest credit-card issuer, a title it gained when it bought MBNA in 2006. On Friday, bank spokeswoman Betty Riess said she couldn't comment on the Federal Reserve's actions until after the bank has had a chance to thoroughly review them. Previously, the bank had said that additional industry regulation, however well-intended, could end up hurting consumers. If card issuers cannot appropriately "price the risks of credit card lending," issuers will have to make up its costs by offering less credit or charging higher rates, a Bank of America executive told a U.S. House subcommittee in March. Gail Hillebrand, senior attorney at the Consumers Union, said Bank of America "certainly has some of these practices that will be prohibited." Consumers Union is the nonprofit publisher of Consumer Reports. The Federal Reserve Board said its new rules are part of an effort "to enhance protections for consumers who use credit cards." Its get-tough stance comes after the Fed was sharply criticized for not acting quickly enough in a burgeoning mortgage crisis that has seen foreclosures skyrocket, home sales and prices plummet, and new-home construction slow. The new rules would prohibit lenders from arbitrarily raising interest rates on any debt unless a promotional rate expires or borrowers were more than a month late in making their payments. Payments also could no longer be classified as late if borrowers didn't receive their statements at least 21 days before the due date. The rules also would stop the practice of "double-cycle billing," in which lenders calculate one month of fees based on two months' worth of activity on an account, and would impose restrictions on how lenders compute balances. Lenders also would be prohibited from allocating payments among balances with different interest rates in a way that benefits only lenders. That means lenders could no longer apply an entire payment only to the balance with the lowest rate, as lenders frequently do with so-called "zero-interest" balance transfers, leaving balances with higher interest rates to grow. Instead, lenders would be required to divide payments in a way that gives consumers the full benefit of any discounted rates. The credit card industry has been under attack on Capitol Hill since Democrats took control of Congress last year. The industry once faced greater controls, but when interest rates skyrocketed in the late 1970s, banks complained that the controls were hurting profits and reducing credit, and the regulations were eliminated. The result has been an industry that critics say has taken advantage of low-income and middle-class Americans, who increasingly are turning to credit cards to pay for living expenses. "Credit card industry abuses have become more pronounced in this troubled economy as more families turn to their credit cards to help pay bills, buy groceries and make ends meet," said Democratic Rep. Carolyn Maloney of New York, the chair of the House Financial Institutions and Consumer Credit Subcommittee. The Fed said the new regulations could be finalized by Jan. 1. ROB HOTAKAINEN McClatchy Newspapers WASHINGTON
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