July 11, 2008
Washington, DC—Consumers Union applauds the government’s effort to protect consumers from unfair credit card practices and calls for quick adoption of the proposed credit card rules in comments submitted to the Federal Reserve Board about regulations proposed by the Fed along with the Office of Thrift Supervision, and National Credit Union Administration.
The agencies have issued proposed rules that would restrict when and how the credit card companies can raise interest rates and assess fees. CU also filed comments seeking much stronger restrictions on unfair practices in high cost overdraft loans. The comment period for both elements of the rule is set to expire August 4, 2008.
“We are grateful the Agencies are now exercising their authority to rein in abusive credit card practices. For too long the focus has been to simply provide consumers with more fine print, while leaving them stuck with unfair practices,” said Gail Hillebrand, a senior attorney for Consumers Union. “It is time the Federal Reserve and other agencies take affirmative steps to stop the unfair practices in the first place.”
Consumers Union supports the following in the proposed rules:
1) Restrict increases on the annual interest rate on existing charges that have not been more than 30 days late. (CU suggests that arbitrary increases to future charges also be restricted.)
2) Requires creditors to mail billing statements at least 21 days ahead of the due date before consumers can be adversely affected from a late payment. (CU suggests 30 days would be more appropriate because of possible mail delays.)
3) Improve payment allocation methods by eliminating the practice of applying payments solely to lower interest rate charges before beginning to pay down higher interest rate charges
4) Preserve the grace period after a balance transfer or promotional rate balance
5) Eliminate over limit fees caused by credit and debit holds. (CU suggests this rule be extended to eliminate bounced check fees caused by credit and debit holds, and also to eliminate overdraft and bounced check fees that arise because of a hold placed on deposited funds.
6) End two-cycle billing, the practice of finance charges being assessed on part of balance that have been paid
7) Restrict the financing of issuance fees and large security deposits on credit cards (This and the other remaining items are found in a companion proposal from the Federal Reserve Board.)
8) Requires creditors to treat payments “on time” when a mailed payment is received by 5pm, and also when the due date falls on a holiday or weekend and the payment is received the next business day.
9) Requires more effective disclosure of fees and interest rates on convenience checks that are mailed with credit card offers.
Consumers Union’s credit card comments are found at www.CreditCardReform.org under “Learn More”, and they are linked below.
In a companion comment letter filed on the issue of unfair practices in overdraft loans, Consumers Union seeks a change in the proposed rule to adopt an affirmative “opt-in” requirement for overdraft loan programs, instead of an “opt-out” requirement, which is currently being proposed. The CU comments cite studies showing that 16 percent of overdraft loan users account for 71 percent of overdraft loan fees. CU proposes that overdraft loan fees be banned for debit card transactions, which account for 46 percent of overdrafts. Finally, CU asked the agencies to end both bounced check and overdraft fees in cases where the bounced check was due solely to a debit hold or a check hold.
“Credit cards shouldn’t change the price of the credit after you borrow the money.” said Hillebrand. “There are just too many ‘gotchas’ in credit cards. This proposed new rule is an essential first step to bring some fairness back into the credit card marketplace, and there is still more to be done,” added Hillebrand.
Consumers Union emphasized that the proposed rule doesn’t address all of the important isses for consumers. Consumers still need stronger protections from the agencies or from Congress, including:
1) End all retroactive interest rate increases.
2) Limit how high and how long companies can assess “penalty” interest rates.
3) Prohibit fees to pay by phone or internet.
4) End changes in interest rates for “any time for any reason” for new charges.
5) Protect young adults from abusive credit card practices.
6) Ban over the limit fees and finance charges when the transaction that has caused the consumer to go over the limit was approved.
7) Ban multiple over the limit fees during a single billing cycle.
8) Prohibit account-opening fees for credit card accounts of more than 10% of the credit limit.
9) Require that prescreened offers describe only those specific interest rates and credit limits for which the consumer is likely to qualify.
Here are our complete filings on credit cards and overdraft services. Consumers who wish to file their own comments on the proposed rule can do so at www.creditcardreform.org.