The Federal Reserve Board today is expected to vote changes in the consumer credit controls program it announced only two and a half weeks ago.
The changes could force many lenders who have already announced plans to comply with the Fed's original program to revise their credit requirements.
Testifying before a congressional subcommittee, Federal Reserve government Nancy Teeters said the changes under discussion are aimed at two goals:
Protecting consumers from unexpected increases in the monthly payments on present credit card accounts.
Giving consumers in all states uniform notice of changes in the terms of credit card accounts that are made to comply with the Federal Reserve's credit controls.
At present 33 states let lenders change the minimum payment and even the interest rate and/or other terms of a credit account simply by telling the consumers.
But 17 states require that consumers be given from three months to a year's advance notice of any changes in credit account terms.
Teeters said the Fed is considering suspending those state laws, so the credit control measures can be put into effect more quickly.
"I would think 30 days' notice would be adequate" to warn consumers their credit card terms may be changed, Teeters said. She stressed that the board has not yet voted on the proposal to pre-empt the state laws.
The other key change under consideration, Teeters said, would limit the ability of lenders to raise the monthly payment on existing credit accounts. State and federal laws permit that in most cases, so long as the customer is given proper notice.
Teeters suggested two possible ways to protect consumers from paying higher monthly charges on existing accounts. One would be, in effect, to freeze the existing accounts and let lenders charge higher interest rates or demand bigger monthly payments on future purchases. That would require lenders to keep two accounts for each customer, something many lenders say they can't handle, Teeters said.
The alternative would be to freeze the payments and terms on existing accounts unless the consumer charges additional purchases on them. "If they use the credit card, there is an implicit agreement to the new terms," Teeters said.
Neither of the changes contemplated by Teeters appeared to satisfy subcommittee chairman Bob Eckhard (D-Tex.).
Eckhard called it "absolutely unconscionable" to change the terms of the existing credit card agreements. Consumers have a right, he said, to be protected from changes in contracts they have signed.
"I'm telling you that if the Fed impinges on that right, I'd be one person who would be extremely disturbed. I'd recommend they (consumers) get a good lawyer and enjoin you from doing it," he said.
House majority leader Jim Wright of Texas told Eckhard's subcommittee he, too, is opposed to permitting lenders to raise payments on existing charge accounts.
Wright suggested retail lenders curtail consumer credit by requiring down payments on credit purchases, as was done under credit controls used during the Korean war.
Teeters said the Federal Reserve Board is not dictating how lenders must control consumer borrowing, only giving them a goal to reach.
Under the program announced March 14, lenders are to try to hold consumer credit to what it was on that date. If a lender increases outstanding credit above the March 14 level, the lender must deposit 15 percent of the increase in a non-interest-bearing account in a Federal Reserve bank.
The board today also may change that March 14 ceiling date, allowing lenders to adjust the ceiling seasonally to reflect the usual patterns of consumer borrowing.
Oil companies say it would be impossible to hold credit to mid-March levels because vacationers traditionally charge large amounts of gas on their credit cards. Retailers complain that their credit balances usually balloon during the Christmas season and that, too, will be difficult to stop.