Fed offers new regulations on credit card practices
Deeper consumer debt blamed on unfair lending
WASHINGTON - The Federal Reserve released a proposal to prevent "unfair or deceptive" credit card lending, moving to limit fees and interest-rate increases blamed for driving consumers deeper into debt.
The Fed rules would bar rate increases on existing balances and finance charges based on balances from previous billing cycles, according to a plan outline released yesterday by the central bank.
"Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs," chairman Ben S. Bernanke said yesterday at a meeting on the proposal. "At present, this is not always the case."
The Fed's plan is a response to criticism from Congress that the regulator was neglecting its authority to rein in abusive lending and strengthen consumer protections. It builds on congressional efforts to curb practices that lawmakers say are harming Americans already reeling in the wake of the subprime mortgage crisis.
Senate Banking Committee chairman Christopher Dodd this week unveiled credit card legislation that would require lenders to give customers 45 days' notice of interest rate increases and bar interest charges on late and over-the-limit fees.
Representative Carolyn Maloney, a New York Democrat, has introduced a similar plan in the House of Representatives.
"Even if they do everything we like," credit card legislation from Congress is still necessary, House Financial Services Committee chairman Barney Frank told reporters Thursday. "What's done by regulation can be undone by regulation."
The credit card industry opposes both new rules and legislation, saying they would undermine the companies' ability to manage risks posed by consumers more likely to default on accounts and reduce consumer access to credit cards.
"The Federal Reserve's proposal is an unprecedented regulatory intrusion into marketplace pricing and product offerings," Edward Yingling, president of the American Bankers Association, said yesterday in a statement.
The Office of Thrift Supervision and the National Credit Union Administration released identical plans this week.
Regulators are developing rules using their authority under the Federal Trade Commission Act to ban "unfair or deceptive acts or practices." The Fed rules would cover banks, the NCUA plan would govern credit unions, and the OTS rules would apply to savings and loans.
Frank, a Massachusetts Democrat, told a Fed official at a committee hearing he held last year to "use it or lose it," referring to the agency's exclusive authority to write the rules for banks.
Frank then shepherded legislation that would extend the authority to the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., two other federal bank regulators. The House passed the measure in December. The Senate has not yet acted on the bill.
