Welcome to Consumer Reports Advocacy

For 85 years CR has worked for laws and policies that put consumers first. Learn more about CR’s work with policymakers, companies, and consumers to help build a fair and just marketplace at TrustCR.org

OCC sides with banks on credit card reform

Thursday, August 21, 2008

Office of the Comptroller of the Currency Sides With Banks Against Consumers on Credit Card Reform Proposal

Federal Reserve Board Proposal Offers Important Protections Against Abusive Credit Card Practices

WASHINGTON, D.C. – The Office of Comptroller of the Currency (OCC) is urging the Federal Reserve Board and other federal regulators to water down a proposed set of rules that would prohibit banks from engaging in certain unfair and deceptive credit card lending practices, according to Consumers Union, nonprofit publisher of Consumer Reports.
As reported in the American Banker, the OCC sent a letter to the Federal Reserve Board, Office of Thrift Supervision, and the National Credit Union Administration, that maintains that restricting these unfair practices would hamper the ability of banks to offer credit to consumers. The OCC recommended that the proposed rules be scaled back dramatically and that federal regulators should instead require banks to provide better disclosure about their practices.
“The OCC is essentially saying that if banks can’t trick or cheat consumers they won’t be able to offer credit,” said Gail Hillebrand, Senior Staff Attorney with Consumers Union. “It is outrageous that the federal regulator overseeing the banking industry is so out of step with the needs of millions of Americans unfairly trapped in debt by abusive credit card practices.”
The proposed rules have generated an unprecedented amount of support from consumers. Over 56,000 comments have been filed with the three agencies since the proposal was first made last May. The overwhelming number of people who have submitted comments have supported the proposal. Among other things, the proposed reforms would:

• Prohibit credit card companies from raising interest rates on money already borrowed except under three circumstances: 1.) the money was borrowed on a variable rate card; 2.) the promotional rate is lost or expired; or 3.) the minimum payment is made more than 30 days late.

• Prohibit credit card companies from charging a late fee if the bill was mailed to the consumer less than 21 days before the due date.

• Require payments to be allocated among balances with different interest rates to give consumers the full benefit of a discounted promotional rate.

• Prohibit credit card companies from charging interest on amounts already repaid, through two cycle billing.

• Restrict the finance fees on credit cards where the fees or deposits use up the majority of the available credit on the account.

• Prohibit credit card or overdraft program fees where a credit hold or a debit hold (in an amount greater than the actual charge or debit) was the cause of the credit card over limit or the bank account overdraft.

The OCC has urged that the proposal be weakened to limit the 30 day trigger for rate increases to just five days and to require credit card companies to provide better disclosure. However, the Government Accounting Office and the Federal Reserve Board have both concluded that enhanced credit card disclosures don’t provide adequate protection for consumers.
“Better disclosure of unfair practices is not real consumer protection,” said Hillebrand. “Consumers should have the confidence of knowing that their interest rates won’t skyrocket if the bill or payment gets lost in the mail.”
The OCC also maintains that the proposed rules will make banks vulnerable to litigation for past practices now designated as unfair and deceptive. But the Federal Reserve Board has made clear that its proposed rules are prospective.
“The OCC’s argument that credit will dry up unless banks can engage in questionable lending practices sounds eerily similar to the arguments made by the mortgage industry right before the current foreclosure crisis,” said Hillebrand. “The mortgage meltdown demonstrates the importance of ending abusive lending practices when warning signs arise. We urge the Federal Reserve Board to adopt these critical protections against unfair credit card practices.”
A copy of Consumers Union’s comments on the Federal Reserve Board proposal can be found at: http://www.creditcardreform.org/pdf/Credit-Card-Letter.pdf
Gail Hillebrand or Lauren Zeichner