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Federal Reserve Board Seeks Input From Consumers About Unfair Credit Card And Overdraft Practices

The U.S. Federal Reserve Board (FRB) seeks input and feedback from consumers about its proposed new rules to limit unfair credit card practices. According to the press release:

"The proposed changes to the Board’s Regulation AA (Unfair or Deceptive Acts or Practices) would be complemented by separate proposals that the Board is issuing under the Truth in Lending Act (Regulation Z) and the Truth in Savings Act (Regulation DD)."

To make these changes, the FRB is working with the FTC (Federal Trade Commission. The FTC Act includes five protections for consumers who use credit cards:

  • "Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time."
  • "Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges."
  • "Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible."
  • "Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle."
  • "Banks would be required to provide consumers a reasonable amount of time to make payments."

The proposed new rules also require banks that make credit offers with multiple interest rates or credit limits to disclose in the offer the factors that determine whether a consumer qualifies for the lowest rate and highest credit limit.

I encourage all consumers to submit feedback online to the FRB. Scroll about two-thirds down the page and click on the "Submit Comments" link under all three regulations. The deadline for feedback is August 4, 2008. The FRB has already received a lot of feedback, but more is needed.

The proposed "new" regulations are a good first step in the right direction. Most of these rules were lifted during the 1980's during the Reagan Presidency. The thinking way back then was that there was too much regulation and that business was suffering.

Before 1980, the maximum interest rate was about 18% and consumers didn't have to endure the variety of fees and abuses. Both major political parties parties participated in the removal of key regulations governing banks and financial institutions. 27 years later, we consumers have direct experience with the results of that de-regulation... the myriad of credit card fees, abuses of consumers, and unfair lending practices.

Sure, some consumers need to expect personal responsibility for taking out loans they knew they couldn't pay, or didn't take the time to understand the fine print. Similarly, not all lenders engaged in predatory lending practices. My point: arguments about personal responsibility should not give predatory lenders a free pass. There's enough blame to go around. Both sides need to accept responsibility.

There's that familiar saying that, "total power corrupts totally." Too much de-regulation allows companies to exercise their newly granted power and ultimately abuse consumers, which we have seen. A better balance between regulation and total de-regulation needs to be found. It exists, but do we, as a nation, have the will?

If you are unfamiliar with that history, or want a refresher, watch this Bill Moyers interview with author and journalist William Greider. It's part of the Moyers Journal episode "The Mortgage Meltdown." I strongly encourage everyone to watch it. Check your local PBS affiliate for broadcast times, or get the DVD when it's available.


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Very intersting post. I really enjoyed reading it.

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