The Federal Reserve Board was poised today to pass unprecedented credit-card reform, which ultimately could reduce the amount that consumers pay in fees and interest.
The Fed proposed regulations in May and has received more than 62,000 public comments since then. The revised regulations will be released later today, when the Fed takes them up for a vote, although they are expected to be similar to what was proposed earlier.
If the Fed moves ahead with the proposal, changes expected for the credit-card industry include:
* Card issuers won't be able to raise rates on outstanding balances unless it is a variable-rate card, a promotional rate is lost or expired, or a payment is more than 30 days late.
* Banks will be prohibited from charging an over-the-limit fee if it is triggered solely by a temporary hold placed on available credit, something hotels typically do.
* Card issuers will be required to send the bill at least 21 days before the due date so consumers have time to make a payment before getting slapped with a late fee.
* Card issuers won't be able to apply payments only to a consumer's balance with the lowest rate to generate more income for the card company. Cards often have multiple rates, say, for balance transfers, cash advances and new purchases.
"This is unprecedented. It's very sweeping. It will do a lot to help consumers," said Lauren Zeichner Bowne, a staff attorney with Consumers Union.
Traditionally, regulators have focused on disclosure to correct problems, but they have found that doesn't work, Zeichner Bowne said.
"Even with improved disclosures, people are still not understanding these agreements enough to make decisions that benefit them and to allow them to avoid all these tricks and traps the credit card companies subject them to," she said.
The proposed regulations don't go far enough, though, to address other problems, Zeichner Bowne said, such as an abrupt reduction in credit lines or fees for paying over the phone or online. She and other advocates are hoping the new Congress will take up this unfinished business.
But American Bankers Association spokesman Peter Garuccio said banks are concerned that the new regulations might limit the ability to raise rates on customers if they suddenly become a high credit risk. And that, he said, will cause banks to raise rates for all customers upfront to cover the potential losses from risky customers down the road.
"Low-risk customers end up subsidizing high-risk customers," he said.
If new regulations are approved, it could take about a year before consumers see the changes.
And at least from the comments that consumers sent to regulators, change can't come fast enough.
For example, William J. Hillen of Noblesville, Ind., wrote: "If the credit card companies want some ideas on how to improve their bottom line, they can stop sending me the 10 solicitations in the mail for new credit cards that I get every week.
"The money saved on postage should add up quickly."