In May 2008, the Fed issued 4 new proposals designed to eliminate some practices from the credit card industry. They’re also proposing better disclosure of their rules to the customers. Below is a brief list of the proposed policies, detailing how it is currently being handled and how they want to regulate it.

Ben Bernanke, Federal Chairman, stated: the proposed new regulations are “intended to establish a new baseline for fairness in how credit card plans operate. Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”

1) Credit card issuers can’t raise interest rates arbitrarily, they must have a legititmate reason.

2) Issuers must send statements 21 days before payment is due, as opposed to the current 14 day minimum. This will help consumers avoid making late payments and incurring an average of $39 late fee.

3) If you carry two balances are different interest rates (say a 0% balance transfer and new purchases at 12%) card issuers must apply payments equally to each balance instead of applying it to the lower interest rate balance first.

4) Abolish two-cycle billing system, which charges interest based on two months balance instead of the just the current billing cycle alone.

There are also more bills in the House and Senate which will further protect consumers. Here is an except from Suze Orman’s site on this subject:

Then this past February, Representative Carolyn Mahoney introduced the Credit Cardholders’ Bill of Rights Act of 2008. And then at the end of April Senator Christopher Dodd introduced the Credit Card Accountability, Responsibility and Disclosure Act (the C.A.R.D. Act). These bills include some provisions that are echoed in the proposed Fed regulations. Consumer advocates believe it important to build on the Fed’s regulations by having actual law in place that mandates consumer protections. (Laws are harder to change than regulations.)

I was especially interested in a few new items in the Senator’s bill that the Fed did not address.

  • Require card companies to show accountholders the total time and total expense they will incur if they choose to only pay the minimum balance due each month. I think putting those figures front and center would wake up a fair amount of people. I would have liked it if this proposal went one step further: show how much both the time and total payment would decrease if the cardholder paid 1%, 2% and 3% more than the minimum amount due each month. Show those figures side by side with what happens if you pay just the minimum and you have an easy-to-see motivation for paying more each month.
  • Curtail credit card companies from proactively pushing credit card offers on consumers under the age of 21. Under the new bill, those young adults would have to initiate contact with the card company to apply for a card.