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Credit Card Comments to the Federal Reserve

Consumers Union asks the Federal Reserve to make sure credit card companies don't try to get around the new limits on rate increases and fees through creative new charge schemes or other unfair demands on customers.

Re: Regulation Z: Truth in Lending, Federal Reserve Board Docket No. R-1370
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Dear Chairman Bernanke, Members of the Board, and Board Secretary Johnson:

Consumers Union, the nonprofit publisher of Consumer Reports , appreciates the opportunity to comment on this proposal to amend Regulation Z and implement certain provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act.) We will also be signing onto extensive joint consumer group comments which address additional issues not discussed here.

Unfortunately these rules have not come soon enough for millions of consumers. Creditors have abused the long implementation time that they sought from Congress to test the limits of this new law before it goes into effect. We provide these comments to ensure that the law is sufficiently strong to protect consumers who have been subject recently to significant changes in their credit card accounts.

I. Summary

In most circumstances the proposed regulations are adequate, but we recommend that the rule go further in certain ways to adequately respond to the creditors’ trial run in recent months at new practices that would circumvent the law. We will highlight these creative new practices and make suggestions that will ensure consumers are not subject to tricks and traps that defeat the purposes of the CARD Act.

We ask the Board to implement the following changes to the proposed rule:

• Adopt anti-evasion language to ensure that the purposes of the Act are not circumvented through new creative practices.

• Adopt anti-waiver language which would prohibit using otherwise permissible changes in terms to force voluntary rate increases when a rate increase is prohibited by law.

• Allow consumers to reject increased minimum payments if the increase exceeds the repayment limitations found in other sections of the law.

• Clarify that an interest back promotion can be lost only for one of the same reasons that an increased APR can be applied to existing balances.

• Require that the initial notice of a consume’s right to opt in to overlimit coverage be provided in writing and contain no information not specified by the Board.

• Clarify that variable rates which fluctuate upwards but do not go below a fixed minimum do not meet the requirements of the variable rate exception.

• Require 45 days notice for account termination unless there is a documented credit risk specific to that consumer.

• Require creditors to freeze rather than close accounts, when consumers assert their right to reject a rate increase or change in terms.

• Ensure that consumers retain the right to earn their way out of a penalty interest rate after six consecutive on time payments.

• Strengthen the prohibition on credit card inducements at institutions of higher education.

• Restore the alternative procedure permitting imposition and refund of an annual fee.