Government adopts new credit card rules

WASHINGTON (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.

They were approved Thursday morning by the Office of Thrift Supervision, a Treasury Department division. The Federal Reserve and the National Credit Union Administration were expected to act on them later in the day. The changes mark the most sweeping clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitraryincreases in interest rates or inadequate time provided to pay the bills.

John Reich, the thrift agency’s director, said the rules “will enhance public confidence in financial institutions and establish a level playing field for institutions that want to do business fairly without suffering competitive disadvantages.”

The changes were hailed by Ohio officials. “The new rules ban some of the worst ‘gotcha’ practices by credit card agencies and banks. These measures were long overdue and will bring relief to struggling families during these difficult economic times,” state Treasurer Richard Cordray said in a statement.

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. Cordray said he submitted more than over 5,300 comments from Ohio residents as well as resolutions of support passed by 60 Ohio city councils and county commissions.

The rules 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.

In addition, 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.