New rules for credit cards

Credit card users should get some relief now that federal regulators have voted to crack down on what some have called "unfair" practices by card issuers.

Among other things, the new regulations will limit credit card issuers from raising interest rates on existing balances unless the customer is 30 days or more late in paying the minimum.

The rules also require that consumers receive a reasonable amount of time to make their credit card payments and prohibits payment allocation methods that unfairly maximize interest charges.

On Thursday, the Office of Thrift Supervision, the Federal Reserve and the National Credit Union Administration approved the regulations, which take effect on July 1, 2010.

Consumer advocates laud the reform, while some banking groups caution that it could increase costs for cardholders.

"I think overall those changes should be helpful to the consumer, but it is still important that they read the print, even if it not as fine," said Charlotte Richert, family and consumer sciences educator for the Oklahoma State University Extension Service in Tulsa County.

The new rules also should lead to clearer credit terms with easier-to-understand credit card applications and monthly statements.

Margo Mitchell, president and CEO of Credit Counseling Centers of Oklahoma, likewise thinks the changes are "great."

"Credit cards have been regulated for years.... I think what drew the ire of so many people was when the universal default policy went into effect," Mitchell said.

The universal default allowed lenders to raise interest rates on customers who were past due on payments with other creditors or bills. It didn't matter if the person had never missed a payment with that particular credit card issuer.

"Their position was you were a greater risk, and that made consumers angry," Mitchell said.

"I would hear people say, 'Can they do that?' ... They would say. 'I've always paid that credit card on time, and now they've doubled my rate.' It had to do with another bill they were past due on," Mitchell explained.

Bill Hardekopf, CEO of LowCards.com and author of "The Credit Card Guidebook," notes that consumers have complained for years about many of the practices targeted by the reforms.

"It has always been extremely unfair that credit card companies were able to raise rates 'at any time for any reason' with only a 15-day notice. Or how they could apply the payment to the lowest interest rate while milking interest on the highest interest rate for as long as possible," said Hardekopf in an e-mail.

Potential downsides could exist behind the good intentions. In order to recoup costs, credit card companies might increase annual fees or adjust interest rates, say some.

"The new regulations will be expensive for the credit card companies to implement, and they will pass those costs off to all credit card holders. Someone is going to have to pay for this, and that's the downside," Mitchell said.

The American Bankers Association, for instance, has cautioned that the rules may increase costs for most card users and reduce credit availability, especially for consumers with lower credit scores or limited credit history.

The changes could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.

While the Independent Community Bankers of America supports some of the changes outlined in the reform, it disagrees with others.

For example, the ICBA supports the credit card disclosure modifications because they will lead to "clearer, simpler, and more complete disclosures" that will help consumers better understand how their credit card accounts operate.

"We are deeply disappointed by the agencies' decision to prohibit banks' ability to re-price for risk.

Removing the ability to re-price as the borrower's risk profile increases will cause higher rates for all consumers and will make it more difficult for marginal borrowers to continue to have access to credit," said Karen Thomas, executive vice president of government relations for the ICBA, in a release.

For people who are trying to eliminate credit card debt altogether, none of these rules are a factor, Richert said. They can avoid loopholes by continuing to pay off debt.

The Associated Press contributed to this report.

Credit card reform benefits

You can save money in interest payments by paying off highest balances faster. Issuers currently apply any payment above the “minimum” to the balance with the lowest interest rate.

Regulations will require issuers to apply payment to the highest interest rate or proportionally to all balances.

More time to react and adjust to changes in terms. Currently the issuer can change the terms of your card with a 15-day notice. The regulations increase the notice to 45 days.

More time to make a payment. Regulations will require 21 days to pay your bill.

You will know when to expect a rate increase. Issuers may increase rates at the end of a specified period, provided the rate increase was disclosed at the opening of the account.

Laurie Winslow 581-8466
laurie.winslow@tulsaworld.com

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New rules for credit cards

The regulations seek to eliminate negative policies.

Credit card users should get some relief now that federal regulators have voted to crack down on what some have called "unfair" practices by card issuers.

Credit card reform benefits

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