Credit card crackdown

Our view: New federal rules could help ease debt burden

May 06, 2008

When cash runs short and bills mount, a credit card can be both the answer and part of the problem. Proposed new rules by federal banking regulators to help consumers navigate the too-often-arbitrary world of credit cards are an overdue, but welcome, response to the vulnerabilities of paying with plastic.

Amid a severe mortgage crisis and credit crunch, the rules should help prevent many cardholders from going under because of some of the industry's worst practices, including usurious interest rates and exorbitant fees. These regulatory steps may not eliminate the need for comprehensive reforms being considered by Congress, but they could offer faster relief.

Americans' reliance on credit cards for everyday needs has increased as a result of the mortgage foreclosure crisis, a sagging economy and higher energy costs. It's not unusual for those juggling bills in an effort to hold onto their homes to max out their credit cards or to make late or minimum payments. The Consumer Credit Counseling Service for Maryland and Delaware averaged about 2,100 counseling sessions a month for the first quarter of this year, compared with about 1,800 in the same period last year. Residents in Prince George's, Montgomery and Baltimore counties as well as Baltimore have been hit hardest.

The belated plan announced last week by the Federal Reserve Board and two other agencies would restrict the banks' ability to raise rates on existing balances based on other credit problems a consumer might have. The proposal would also prohibit banks from treating payments as late unless consumers are given about three weeks to make them. And on credit card accounts with different rates for purchases and cash advances, banks would have to split payments more fairly and not just apply them to low-rate balances.

While some companies warn that the proposals could dry up credit, the industry should recognize that some of its practices have caused irreparable harm. The proposals, which don't take effect until the end of the year, should not prevent Congress from acting on its own. But they offer consumers a chance to stabilize their credit card payments enough to get out of debt - a worthy result.

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