Credit-card firms facing crackdown
WASHINGTON - The Federal Reserve and other regulators initiated steps yesterday to end "unfair and deceptive" credit-card industry practices assailing consumers who are already struggling to cope in a bad economy.
WASHINGTON - The Federal Reserve and other regulators initiated steps yesterday to end "unfair and deceptive" credit-card industry practices assailing consumers who are already struggling to cope in a bad economy.
The proposed rules would be the biggest clampdown on the industry in decades, aimed at protecting people from credit-card companies that arbitrarily raise interest rates or don't give borrowers adequate time to pay their bills.
The proposals also would restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. The Fed's board voted yesterday to approve the recommendations.
Federal Reserve chairman Ben S. Bernanke said the proposed rules "are intended to establish a new baseline for fairness in how credit card plans operate." Consumers using credit cards "should be better able to predict how their decisions and actions will affect their costs," he said.
Lawmakers who have demanded tougher controls on the credit-card industry were generally positive about the proposed rules, as were consumer groups. But some questioned whether the changes would be strong enough and soon enough to help the millions of households struggling with credit card debt.
The Fed drew considerable criticism for its slow response to abuses that contributed to the subprime mortgage crisis.
The banking industry opposes the changes, and says they could lead to higher interest rates. The rules could be finalized by the end of the year.
The government agencies said the proposed rules also would require federal credit unions to give consumers a chance to opt out of an overdraft-protection program. And they would prohibit those institutions from charging a fee for an overdraft caused by a hold placed on consumer's funds when a person uses a debit card.
The Consumer Federation of America estimates that credit-card debt held by consumers is about $850 billion, roughly four times what it was in 1990. The group says the average debt for those 58 percent of card-holding households that do not pay their balance in full every month is about $17,000.
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