Monday, July 21, 2008

Proposed credit card changes

In the not exactly news category, the Federal Reserve this May proposed changing several regulations for credit card issuers. The new regulations are intended to rein in some of the "gotcha" practices of the card companies. The regulations include:

  • Giving consumers more reasonable amounts of time to make payments and setting more reasonable due dates for payments.
  • Limiting the circumstances under which an issuer can increase interest rates on existing balances, such as to changes in pegged rates or to missed payments on those balances. This rule would prohibit the current practice of raising rates on outstanding card balances if something else in your credit situation changes.
  • Requiring issuers to apply at least some of the payments in excess of the minimum to balances that have high interest rates. For instance, if part of your balance comes from cash advances, which typically have very high interest rates, and part comes from regular purchases, which usually have lower rates, the issuer would have to apply part or all of any excess payment to the cash advance balance.
  • Eliminating "two-cycle" billing. This would restrict issuers to only charge interest and fees on balances from the current billing cycle.
  • Preventing over-limit fees for credit card holds. Card issuers could charge fees for actual charges that push you over your credit limit but not for temporary holds by hotels, gas stations, and others that do not result in actual charges.
There are also several additional regulations for disclosures of terms and for subprime cards. A summary of all of the proposed regulations is available here.

Though card issuers are opposed, these are all sensible restrictions. The Fed is taking comments through August 4.

Consumers should remember that the best ways to hold down fees are to use credit cards responsibly, to understand the terms of their existing cards, and to shop around for the best rates and terms for their individual circumstances.