Proposed Credit Card & Banking Regulations

May 2008

The government is getting serious about credit card industry regulation. After a decade of increasingly lax rules for consumer credit cards and policies focused only on disclosures, the Federal Reserve Board, Office of Thrift Supervision and the National Credit Union Administration have backed a proposal that would set new rules for credit card issuers.

Here is what you would get with these new credit card rules:

1. More time to make payments. Specifically, they are asking for a reasonable amount of time between when you receive your statement and when your payment is due. You would have 21 days from the date the statement was mailed or delivered before your payment date. This would reduce the likelihood of late payments.

2. Your payments would go toward the balance with the highest rate. Currently, credit card issuers can force your entire payment to go to the balance with the lowest rate. A problem if you use the low rate promotional checks and carry a balance. With this rule, the payment would either go to the balance with the highest APR or would be split equally between the balances.

3. Steadier interest rates. Credit card issuers won't be able to raise your APR on an existing balance. The exceptions — if you had a promotional rate that was expiring or you had made late payments.

4. No overlimit charges for credit holds. You couldn't be charged an overlimit fee just because of a credit hold. Credit holds occur when a car rental agency puts a $400 "earmark" on your card in case there are damages or when a gas station puts a $75 hold before you finish pumping. They're not actual charges, just a test of your available limit.

5. No more double cycle billing. Credit card issuers will not be allowed to use previous billing cycles to calculate interest on your current bill. Current double cycle billing uses the average balance from the previous two months to calculate interest charges, even if you paid part of the previous balance. This is a confusing (we explain double cycle billing here) and expensive practice.

6. Restrictions on expensive account opening fees. Credit card issuers won't be able to charge set-up fees to your account if they take up the majority of your credit limit. Any fees that are over 25% of your credit limit would be spread out over a year instead of charged at the account opening. This rule is helpful to consumers who are trying to rebuild their credit with low limit subprime credit cards. Currently, the entire credit limit may be used up by fee charges when the account is first opened.

7. Less bait and switch with pre-approved offers. Credit card marketers often promote a range of scores and credit limits in their offers. They might say 7% APR and a $10,000 limit when in fact you'd really qualify for 22% and a $500 limit. Credit card companies would have to disclose the factors they use to determine qualification.

There are also two proposed rules for the banking industry:

1. You'll be able to opt-out of overdraft programs. Currently, most banks automatically sign customers up for overdraft protection. If you make a transaction that goes over your balance, your payment will go through but you'll be charged a lot of fees that come along with the protection program. These expensive fees sometimes lead to even more overdraft charges and then even more fees. This proposal would require banks to make the overdraft protection free unless they provided consumers with a chance to opt-out. It would apply to checks, direct withdrawals (ACH), ATM withdrawals, etc. If you opt-out and bounce a check, you'll only be charged the NSF fee and the bounced check fee from the retailer.

2. No overdraft fees for debit holds. This is the same as #4 for credit card issuers above. Banks would not be able to charge overdraft fees due to a hold being imposed on your balance.

Potentially, these new credit card and banking rules could be finalized by the end of the year. In the meantime, the threat of regulation could inspire some financial institutions to adopt these policies on their own accord. It's good news for consumers either way.

We'll be tracking updates about these proposals online at CreditBloggers.com. If you have any questions, you can email our team of credit and money experts.

If you're a reporter, click here for media contact details.