Credit Card Reform

Consumers long have complained about credit card interest rates and penalties. And for years credit card issuers have fought off efforts in Congress to stiffen regulations covering the industry. That appears to be about to change.

The Federal Reserve, the federal Office of Thrift Supervision and the National Credit Union Administration are set to adopt new rules that would, in the words of a banking official, "comprise the greatest overhaul of the credit card marketplace in more than 30 years."

The proposed rules would cover more than 16,000 credit card issuers, including Citigroup Inc., Bank of America Corp. and J.P. Morgan Chase. Among other things, the rules would:

Eliminate interest rate hikes on existing balances, in most circumstances, even if a consumer's credit score decreases or he misses a payment by a few days or exceeds a credit limit.

Eliminate so-called "double-cycle billing," allowing consumers to keep part of their interest-free periods even if they don't pay their balances in full.

Prohibit issuers from allocating payments in ways that increase consumer costs.

Eliminate over-the-limit fees based on "holds" on consumers' accounts.

Eliminate excessive upfront fees for consumers with blemished credit histories.

Eliminate brief payment windows by requiring issuers to send billing statements at least three weeks in advance.

Among the estimated 1,000 pages of new rules are some mandating how issuers communicate with consumers, including: uniform language on solicitation materials, agreements and statements; highlights of potentially costly provisions such as late payments; and notification of the date and time of day payments are due.

The three regulatory agencies acted after members of Congress, reacting to consumer complaints, pressured them to do so.

The Federal Reserve, the nation's central bank, never had used its powers to regulate credit card issues, and this likely isn't going to be the last word in credit card regulation. Democrats, who have led the call for increased regulations, soon will control the White House as well as Congress. In drawing up the new regulations after 2 1/2 years of study, the Federal Reserve received more than 60,000 public comment letters, a record for a regulatory proposal.

The new regulations could come at a cost for consumers. Credit already is tight and banks, with $976.1 billion in outstanding revolving debt as of the end of October, are likely to limit their exposure by tightening credit limits and issuing far fewer new cards.

Still, the changes should be adopted. They would help many consumers ease their total credit card debt, now at about $5,710 per borrower, according to TransUnion.

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