Fed Proposes Rules on Credit Cards

Fed Proposes Rules on Credit Cards
Copyright By REUTERS
Published: September 29, 2009
http://www.nytimes.com/2009/09/30/your-money/credit-and-debit-cards/30card.html?th&emc=th


WASHINGTON (Reuters) — The Federal Reserve proposed tough credit card rules on Tuesday to protect consumers from potentially costly practices by lenders, and moved to put in place legislation enacted in May.

“This proposal is another step forward in the Federal Reserve’s efforts to ensure that consumers who rely on credit cards are treated fairly,” Elizabeth A. Duke, a Fed governor, said in a statement.

The proposals, issued for public comment, represent part of the Fed’s execution of the Credit Card Act, which was signed by President Obama in May.

The Fed adopted final rules prohibiting unfair credit card practices in December 2008. The proposals released on Tuesday amend those regulations to incorporate provisions in the new law.

“The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts,” Ms. Duke said.

They would protect consumers from unexpected increases in credit card interest rates by generally prohibiting a rate rise in the first year after an account is opened, and increases in a rate that applies to an existing card balance.

They would also prohibit creditors from issuing a card to anyone under the age of 21 unless the borrower had either the ability to make the required payment, or had the signature of a parent or other co-signer who had the means to do so.

In addition, the proposed rules would mean a consumer’s consent would be needed before creditors could charge fees for transactions that exceed the credit limit, and would curb fees linked to subprime cards for consumers with risky credit.

They would also ban “two-cycle” billing methods, where a creditor raises an interest rate and charges the higher rate for a customers’ previous borrowing.