Proposed Credit Card and Banking Regulations

Proposed Credit Card and Banking Regulations
It looks like the government will be getting serious about
credit card regulations. The Federal Reserve Board proposed
rules to prohibit unfair practices regarding credit cards
and overdraft services that would among other provisions,
protect consumers from unexpected increases in the rate
charged on pre-existing credit card balances.

Regulation AA (Unfair Acts or Practices)
The proposal would amend Regulation AA to prohibit unfair
or deceptive acts or practices by banks in connection with
credit card accounts and overdraft services for deposit
accounts.

Credit Cards

- More Time To make Payments
The proposal would stop banks from treating a payment as
late unless the consumer has been provided with reasonable
amount of time to make that payment. There would be a new
safe net for banks that send periodic statements at least
21 days prior to the payment due date.

- Allocation of Payments
When you have a credit card with different balances (for
example, purchases, and cash advances), typically the
annual percentage rate (APR) is higher on the cash advance.
When you make a payment on a scenario like this the bank
will apply your payment to the lower of the two. With the
new regulation the payment will be split equally amongst
the two balances. In addition, to enable consumers to
receive the full benefit of discounted promotional rates
(for example, on balance transfers), during the promotional
period payments in excess of the minimum would have to be
applied first to the balances on which the rate is not
discounted.

- Two-Cycle Billing
The proposal would stop banks from imposing finance charges
based on balances on days in billing cycles preceding the
most recent billing cycle. Credit card issuers will not be
allowed to use previous billing cycles to calculate
interest on your current bill. Current double cycle billing
uses the average balance from the previous two months to
calculate interest charges, even if you paid part of the
previous balance.

- Rate increases to existing balances
Credit Card companies will not be able to increase you APR
on existing balances, unless you had a promotional offer
and/or was late on a payment

- Less bait and switch credit card offers
The proposal would require banks making firm offers of
credit advertising multiple APRs or credit limits to
disclose exactly what the qualifications would be for those
terms.

- Finance of Security Deposits and Fees
The proposal would address concerns regarding subprime
credit cards by prohibiting banks from financing security
deposits and fees for credit availability (such as
account-opening fees or membership fees) if charges
assessed during the first twelve months would exceed 50
percent of the initial credit limit. The proposal would
also require financed security deposits and fees exceeding
25 percent of the initial credit limit to be spread over
the first year.

- Credit Card Holds
The proposal would prohibit banks from imposing a fee when
the credit limit is exceeded solely because a hold was
placed on available credit. This can occur where the final
dollar amount of a transaction was not known in advance
(for example, when a consumer checks into a hotel, a hold
is placed for the expected cost of the stay).

Overdraft Services

- Debit Holds
This proposal would stop banks from charging a fee when an
overdraft takes place to due to a hold placed on available
funds in an account.

- Right to opt out
The proposal would stop banks from imposing a fee for
paying overdraft unless the bank gave the consumer an
opportunity to opt out of the payment of overdrafts and the
consumer has not done so. This would apply to all
transaction types. This would also be applied to overdrafts
resulting from ATM and point of sale transactions.

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