Fed proposes changes in credit card industry

McClatchy Newspapers

WASHINGTON — What prompted a slew of new federal proposals to combat abusive practices in the credit card industry depends on whom you talk to in Washington.

Some say the new recommendations by the Federal Reserve Board were the result of congressional pressure and public outcry.

Others say that regulators, stung by their own inaction in the subprime mortgage meltdown, feared a similar mistake would cause the growing credit crisis to snowball.

Though there’s disagreement about what sparked the move, even the most jaded political observers now agree that, after years of complaints, relief is finally on the way for cardholders who feel victimized by their plastic.

“I’ve not seen anything like this out of the Federal Reserve ever,” said Travis Plunkett, the legislative director of the Consumer Federation of America. “These problems have been coming up for a decade, and they’ve been asleep at the switch. But that’s changing. It’s a new world.”

And not a moment too soon for such folks as Kathi Parlier of Newnan, Ga., whose credit card interest rate jumped from about 7 percent to 32 percent in 2004 after a property foreclosure damaged her credit rating. Parlier, 42, said she’d never made a late payment on the card.

“I could deal with it going to 12 to 15 percent, but considering I was never late, they never should have gone up on it like that,” Parlier said. “They shouldn’t be able to do that.”

New rules proposed by the Fed wouldn’t stop rate increases like Parlier’s, which are known as “universal defaults.” But they would prohibit card companies from applying the higher rate to the existing card balance — unless the cardholder was more than 30 days late on his or her bill.

The recommendations call for credit card companies to stop imposing interest charges using the “two-cycle” billing method, which calculates interest for a single billing cycle based on the average balance of the last two billing cycles. Another proposal requires card payments received by 5 p.m. on the due date to be considered on time.

Other proposals would limit fees that reduce available credit on subprime credit cards and require credit solicitations to disclose the factors used to determine an applicant’s interest rate and credit limits. Related proposals by the Fed would require banks to give customers notice and the opportunity to opt out of transactions involving account overdrafts before punitive fees and charges are imposed.