| Credit Card Company Reform |
| By Credit Federal |
Published
08/31/2008
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Financial News
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Credit Card Company Regulations May Impact High Risk Consumers
As predicted in a previous article, the proposed credit card company reforms could severely impact the ability for high risk, bad credit people to obtain and maintain lines of credit. The threat is so real, that the Office of the Comptroller of the Currency has asked other federal regulators to lessen the proposal which includes cracking down on unfair and deceptive credit card practices.
The proposal which was issued earlier this year by the Federal Reserve, Office of Thrift Supervision and the National Credit Union Administration, would ban credit card issuers from elevating interest rates on existing balances except in certain circumstances, such as when a promotional rate expires. It would also require banks to apply at least part of any payment to higher rate balances and clamp down on fees charged to consumers with blemished credit.
61,000 comments, mostly from consumers with credit card complaints, followed the proposal. In May, after the Fed received more than 2,000 consumer comments on a separate, but related, proposal to clarify credit card terms, Chairman Ben Bernanke said that "improved disclosures alone cannot solve all of the problems consumers face in trying to manage their credit card accounts."
Comptroller of the Currency John Dugan wrote that reform could have "unintended and undesirable consequences," such as less credit being offered to consumers. The agency oversees most credit card issuers but doesn't have the authority to propose rules like other bank regulators, including the Fed.
Dugan stated that banning issuers from raising rates except under limited circumstances "would severely curtail the ability of creditors to react to adverse changes in a borrower's risk characteristics during the term of the account." He said; however, that he supports restrictions on credit card fees charged to consumers with less than perfect credit and on double cycle billing, a practice in which finance charges are calculated based on two months' worth of activity.
The American Bankers Association has also expressed some of the same concerns, and that restricting banks' ability to adjust rates for risky customers could lead to higher interest rates and fees being passed on to other borrowers.
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