Public Asked To Comment on Credit Card Rules

July 01, 2008

The Federal Reserve Board is seeking the public's input on proposed rules that are designed to prevent unfair practices regarding credit cards and overdraft services.

Changes to the Board's Regulation AA (Unfair or Deceptive Acts or Practices) would be complemented by separate proposals the Board is issuing under the Truth in Lending Act (Regulation Z) and the Truth in Savings Act (Regulation DD).

The rules, proposed for public comment under the Federal Trade Commission (FTC) Act, include five key protections for consumers who use credit cards. The rules would:

  • prohibit banks from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and require them to allow the consumer to pay off that balance over a reasonable period of time;
  • prohibit banks from applying payments in excess of the minimum in a manner that maximizes interest charges;
  • require banks to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first and by providing a grace period for purchases where the consumer is otherwise eligible;
  • prohibit banks from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle; and
  • require banks to give consumers a reasonable amount of time to make payments.

The proposal also would address subprime credit cards by limiting fees that reduce available credit. In addition, banks that make firm offers of credit advertising multiple rates or credit limits would be required to disclose the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.

The Board's proposal also addresses practices in connection with a bank's payment of overdrafts on a deposit account, whether the overdraft is created by check, a withdrawal at an automated teller machine, a debit card purchase, or other transactions. The proposal requires institutions to notify consumers and give them an opportunity to opt out of the payment of overdrafts before any overdraft charges are applied to consumers' accounts.

To ensure that all consumers are protected regardless of where they obtained their credit cards, the Board's FTC Act proposal is issued concurrently with similar proposals by the Office of Thrift Supervision and the National Credit Union Administration that would apply, respectively, to savings associations and federally chartered credit unions.

Due to the significance of the issues raised, the comment period for the FTC Act proposal ends 75 days (Aug. 2) after publication of the proposal in the Federal Register, while the comment periods for the Regulation Z and DD proposals end 60 days (July 18) after publication.

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Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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