Fed to vote on sweeping reform of the big credit-card industry

Washington Post

WASHINGTON — The Federal Reserve on Thursday will vote on sweeping reform of the credit card industry that would ban practices such as retroactively increasing interest rates at will and charging late fees when consumers are not given a reasonable amount of time to make payments.

B anking officials and consumer advocates said that they do not expect substantial changes before the vote, especially since members of Congress have pressured the Fed not to water down the rules.

However, industry officials and consumer advocates said, the Fed will likely postpone a decision on a proposal to prohibit banks from charging fees for overdraft protection unless they have given customers the chance to opt out. Both the banking industry and consumer advocates considered the overdraft proposal flawed.

If the new credit card regulations are approved largely as proposed, they would represent the most significant overhaul of the industry in decades, banking officials and consumer advocates said.

The changes are particularly needed now, consumer advocates said, because many borrowers are drowning in debt and having trouble making their payments in the midst of a deep recession.

Among the many provisions is a ban on raising interest rates on existing balances unless the customer was 30 days or more late in paying the minimum. Other circumstances in which a rate change would be allowed would be if the card had a variable rate or a promotional rate that was set to expire. Banks would also not be able to treat a payment as late if the customer had not been given a fair amount of time to make that payment.