News - Low Rate Credit Card
Regulators' moves to stop credit card tricks deserves vocal support
Monday, May 12, 2008
Consumers should be applauding and pushing rules proposed by the Federal Reserve and other regulators to rein in some much-criticized practices of credit card issuers.
The rules have teeth that bite into the heart of what has long made consumers' blood boil. Under the proposals:
• Financial institutions would be prohibited from treating a payment as late unless consumers have been given a "reasonable amount of time" to pay their bill.
Issuers would be barred from charging a late fee if the credit card bill was mailed to the consumer fewer than 21 days before the due date.
• Credit card issuers would be prohibited from increasing the annual percentage rate on an outstanding balance, except in certain instances. Those include if a borrower is more than 30 days late in making a payment or if the promotional interest rate has expired.
• Issuers would be required to more fairly apply the payments that cardholders make to balances with different interest rates. When consumers transfer balances with low, short-term "teaser" rates that have higher rates for new purchases, issuers would be required to apply payments first to higher-rate debt.
Illustration by DAN PAGE/Special Contributor
That's in response to criticism that card firms were applying payments first to balances with a lower interest rate, causing borrowers to rack up higher finance charges on balances subject to a higher rate.
Banks are vowing to fight the proposals tooth and nail.
"The Federal Reserve's proposal is an unprecedented regulatory intrusion into marketplace pricing and product offerings," Edward L. Yingling, chief executive of the American Bankers Association, said in a prepared statement. "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."
The rules would prevent card issuers from charging interest rates that account for the risks of different consumers, he said.
"If card companies cannot fully reflect risk, then millions of consumers with good credit histories will end up with higher rates," Mr. Yingling said.
Banks have good reason to be screaming.
Credit card fees comprised 39 percent of issuers' revenue last year, up from 33 percent five years ago, said Robert Hammer, chairman and chief executive of R.K. Hammer, a credit card consulting firm in Thousand Oaks, Calif.
"It's grown substantially," he said.
Source : http://www.dallasnews.com
