The Federal Reserve and two other agencies proposed yesterday sweeping new regulations to stop "unfair or deceptive" practices in the credit card industry, giving consumers struggling with debt their most significant new protections in decades.
The proposed rules would require credit card companies to give people at least 21 days to pay bills without incurring late fees and stop banks from arbitrarily raising interest rates on existing balances, among other things.
Federal Reserve Chairman Ben S. Bernanke said the proposed rules "are intended to establish a new baseline for fairness in how credit card plans operate."
The regulations are aimed particularly at the more than half of all credit card holders who don't pay their bills off every month, putting them at greater financial risk during an economic downturn. The Fed calculates that Americans carry $951.7 billion in revolving credit debt.
The Consumer Federation of America and other groups praised the new rules, but said they don't go as far in protecting consumers as several reform bills pending in Congress. Consumer advocates have criticized the Fed in the past for allowing banks to engage in unfair practices, as long as the card issuers disclosed the rules to customers in brochures and other communications, often in fine print.
"The shocking thing about these rules is that they've been proposed at all," said Edmund Mierzwinski, consumer program director for U.S. PIRG, a consumer advocacy group in Washington. "We strongly believe we will still need congressional action because these rules only go so far."
Banking industry officials contend that the new rules will reduce consumer choice and potentially lead to higher rates for everybody. The result could be reduced access to credit at a time when the Fed is trying to increase those options in the marketplace, an industry trade group said.
"We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards," Edward L. Yingling, president and chief executive of the American Bankers Association, said in a statement.
The proposed rules come as members of Congress and federal regulators say they are receiving more complaints from the public about credit card companies, which is contributing to a growing appetite for reform.
