17 April 2008

US Crackdown on Credit Card Fees Coming

Good news in general although our skeptical sense is that the Fed is trying to stall the Democrats' effort in this area which is likely to be a little more rigorous.

No wonder the Wall Street Banks were so anxious to get that Visa IPO out the door come hell or high water or another wave of credit defaults.

The tide seems to be receding for the credit vultures.

US crackdown on credit card fees seen by year-end
18 Apr, 2008, 0016 hrs
The Economic Times

WASHINGTON: The Federal Reserve will soon unveil a broader plan to protect consumers from abusive credit card practices than a proposal it issued last year, a Fed official told lawmakers on Thursday.

The Fed's new plan, which it hopes to finalize by December, would restrict retroactive rate increases and other fees that consumer groups and lawmakers have criticized as exorbitant. In February, U.S. House of Representatives Democrats introduced a bill to stop arbitrary interest rate increases, penalties for consumers who pay only a portion of their balances on time, and excessive fees charged by credit card issuers.

Sandra Braunstein, director of consumer affairs at the Fed, acknowledged that a Fed proposal last June did not go far enough to help consumers. (How unusual. Let's give the Fed more power to do nothing effectual. - Jesse)

That plan would have required plain-English disclosures by credit card issuers to help consumers understand fees and rates. (What a draconian reform! The industry proposal was for the disclosures to be in an obscure dialect of the Anasazi Indians. PLAIN English! Wait! The Fed didn't specify what kind of English. How about plain MIDDLE English? The language of Chaucer. Ah! - Jesse)

"Careful measures that would restrict credit card terms or practices may, in some instances, be more effective than disclosure to prevent particular consumer injuries," Braunstein told a House Financial Services subcommittee hearing. (No shit Sandy, really? I've heard the State Police are going to stand on the edge of the highway and chastise reckless drivers with stern glares as they speed by. Did you design that reform too? - Jesse)

Chairing the hearing was Rep.Carolyn Maloney, a New York Democrat who wants Congress to adopt a credit card holder's bill of rights. Some lawmakers expressed concern that the regulators' efforts could conflict with congressional efforts to revamp credit card rules. "I'm very concerned about how we are doing this," said Rep. Mike Castle, a Republican from Delaware. (I am sure Mike is primarily concerned about the large contributions he receives from credit card companies operating out of his state. - Jesse)

Banks that offer credit cards, such as Bank of America Corp and Capital One Financial Corp, oppose the legislation. They have warned it could raise fees and reduce the amount of credit available to consumers. John Carey, chief administrative officer of Citigroup Inc unit Citi Cards, said new restrictions would penalize responsible customers. (How about a national usury law? We'll know its good if the CEOs of Capital One, BAC, and Citi blow chunks when they read it. - Jesse)

"The financial burdens associated with the higher-risk customers will be spread across all customers," Carey said in testimony prepared for the subcommittee. The Fed is aware that proposed restrictions could have unintended negative consequences, such as reduced credit availability and raised costs, Braunstein said. (Oh yeah but when it comes to bubbles the Fed can't find its own ass with both hands. - Jesse)

Also working on the proposed regulations to crack down on abusive practices are the U.S. Office of Thrift Supervision (OTS) and National Credit Union Administration, she said. (Oh great idea. If they ever write reforms for organized labor abuses can we conjure the ghost of Jimmy Hoffa to help? - Jesse)

OTS Deputy Director John Bowman said his agency shared lawmakers' concerns about the practice of increasing the annual percentage rate on an outstanding balance for reasons other than cardholder behavior directly related to the account.

"In our ... proposal we expect to place restrictions on some of these types of practices," Bowman said. Bowman called the practice of computing finance charges based on account balances in billing cycles preceding the most recent billing cycle "troubling." (Criminal and obscene were the ones that first came to mind. - Jesse)

For example, when a consumer makes a payment on a portion of his bill, the credit card company may still charge interest on the full amount, even though part has been repaid. (Gee, how could anyone object to that? I think we should start doing the same thing with corporate income tax payments, retroactive to the beginning of the Bush Administration. - Jesse)

"It is very difficult for consumers to avoid the increased costs associated with double-cycle billing because most consumers simply can't understand it," Bowman said. "This is another area that we address in our proposal." (I think they understand it all right. Its just that they can't do anything about it. - Jesse)

The OTS supervises credit card activities of thrift institutions. The agency is "at the beginning "stage of crafting tougher rules and will soon issue a notice of proposed rule making, Bowman said. But Braunstein said the Fed may use its unique authority to impose stricter regulations on the credit card industry. (These guys make FEMA look like Delta Force - Jesse)