In a recent summit meeting with executives of 14 major banks, President Obama urged them to voluntarily adopt the consumer protection reforms reflected in the Federal Reserve rules scheduled to take effect on July 1 of next year.
In a recent summit meeting with executives of 14 major banks, President Obama urged them to voluntarily adopt the consumer protection reforms reflected in the Federal Reserve rules scheduled to take effect on July 1 of next year. At the same time, a couple of bills are making their way through Congress that would offer even more protections and could possibly push the effective date forward. Both the legislation and the Fed rules target what consumer advocates see as major problems in the credit card industry.
One recent move by credit card issuers is to slash credit limits, sometimes below the cardholder’s outstanding balance. That cannot only result in an over-limit penalty charge, but it can also lower the cardholder’s credit score, since 30% of that score is based on the amount of credit used relative to the total amount available. The Fed rules would require banks to give the cardholder 45 days notice before lowering credit limits. Another practice at issue is rising interest rates. Even though other loan rates are at historic lows, banks are upping credit card rates. Fed rules would prohibit rate increases during the first year after a card is issued and a Senate bill would ban “any time, any reason” rate increases.
The Fed rules also address penalty interest rates, which can go as high as 32% if the cardholder is as little as a day late with a payment or goes just $1 over the credit limit. Under the Fed rules, banks would no longer be able to impose those penalties unless the payment is more than 30 days overdue. The Senate reform bill would also limit any penalty rates to purchases made after the higher rate goes into effect, rather than to the entire balance.