Fed seeks public comments on proposed credit card reforms

By Michelle Singletary
Thursday, March 18, 2010; A14

In what feels like never-ending regulatory fiddling with the Credit Card Accountability Responsibility and Disclosure Act of 2009, the Federal Reserve wants to know what consumers think about certain fees that lenders charge as penalties for late payments or other issues.

To be fair, the Fed is only following Congress's mandate, which ordered that the CARD Act's provisions be implemented in three phases. The first went into effect last summer, the second in January. The final phase will take effect this summer.

The Fed has proposed several rules amending Regulation Z, the truth-in-lending provision. In addition to penalty fees, the rules would also require credit card issuers to reconsider increases in interest rates.

If you use a credit card, take the time to read about these proposed changes and then comment. Read the federal register notice at http://www.federalreserve.gov/newsevents. You'll find a link to the notice in a news release under Banking and Consumer Regulatory Policy.

Here's a summary of the specific rules:

-- Credit card issuers would be prohibited from imposing penalties that exceed the dollar amount of an infraction. For example, let's say you are late making a required $25 minimum payment on your credit card. The lender couldn't charge you a fee that is more than the amount overdue. In another example, a consumer who exceeds the credit limit by $5 could not be charged an over-the-limit fee of more than $5.

The idea is that these types of fees should be reasonable and proportional to the violation. I suspect companies might get around this by increasing the minimum payments on their customers' accounts, which they are allowed to do under the CARD Act with proper notification.

Because the law allows companies to recover the collection costs of servicing accounts, the proposal would require card issuers to reevaluate those expenses at least annually to ensure that penalty fees are based on relatively current cost information.

-- Companies would not be allowed to impose an inactivity fee on customers who fail to use their credit cards to make new purchases. I've heard from quite a number of people who have begun to receive notices of fees for cards they haven't used in years.

-- Issuers could not charge multiple fees based on a single late payment or other violation of their account terms. So, for instance, if you are late paying your bill, the company couldn't keep charging you a late fee for that one incident.

-- Your credit card lender would have to inform you of the specific reasons for increasing your interest rate.

-- If your rate has increased since Jan. 1, the issuer would have to evaluate your account at some point. And if the reason your rate was increased is no longer an issue, if appropriate, it would have to do a rate reduction.

If you want to comment on the proposals, send an e-mail to regs.comments@federalreserve.gov. Include "Docket No. R-1384" in the subject line. You can also comment by fax to 202-452-3819; remember to include the docket number. Comments must be received on or before April 14.

The Consumers Union, the nonprofit publisher of Consumer Reports, is urging people to send comments to the Fed. The consumer advocacy group has provided a template letter for people to use and personalize with their experiences. For example, the group recommends that the Fed impose a cap to prevent banks from seeking loopholes that would allow them to continue charging high fees.

"It is critical the board issue the strongest rules possible to protect consumers, since the banks continually come up with new ways to get around the consumer-protection laws," wrote one person, who used a Consumers Union sample letter and signed her name as Susan Smith. "I urge you to give me the protections I was promised under the CARD Act, and issue the strongest rules possible."

Yet not all posters support more regulation. One wondered: "Why don't you just socialize the entire credit card industry? You keep adding regulations on top of regulations, do you not understand that these costs will eventually, somehow be passed onto the consumers? You are incorrectly penalizing the corporations for the incompetence of the consumer."

Another offered: "It is my opinion that this is another set of meaningless rules and regulations that will not affect the banks or their extreme practices whatsoever. These regulations have enough loopholes and delays built in that they will have no 'teeth' with the banks."

I disagree with the last comment. The CARD Act and the proposed changes are better than what was the old rule of the day, which was essentially gouge people at will.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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