Finally! Banking Regulators Propose Ending Unfair and Abusive Credit Card Practices
This is the first step; the next step is up to you!

The Federal Reserve Board and two other federal banking agencies have released a proposed rule that aims to reform some of the most abusive credit card lending practices. The new proposed rule finally offers some real protections, not just more disclosure.

For a short summary of the proposed rule, go to: http://www.consumersunion.org/pdf/CreditCardReformShortSummary.pdf

Consumers played an important role in this process. The Federal Reserve Board said it decided to take action after it received over 2,000 comments from individual consumers describing how they were treated unfairly by credit card companies. This is proof that consumer comments make a real difference.

Your voice makes a difference!

This important new rule of fair play is just a proposal. This is a three step process and the proposed rule is step one. The banks are fighting hard to weaken the rule before it becomes final. Don't let the banks win! The Federal Reserve Board needs to hear from more than the big bank lobbyists. You can help ensure that the proposal remains strong. It’s critical that the Federal Reserve Board hears from ordinary Americans that they should hang tough against the powerful banks. If you’ve been treated unfairly by your credit card company, tell the Federal Reserve Board your experience and that you support the proposed reforms.

The next step is up to each of us, but the time is now! The Federal Reserve Board is only accepting consumer input until August 4th, 2008. Let the Federal Reserve Board know what you think about these reforms or to tell them about any other reforms you want on credit cards.

Submit a comment. The official name of the rule is Regulation AA - Unfair or Deceptive Acts or Practices. Include the Docket number [R-1314] to be sure that the Federal Reserve Board sees your comments.

To file your comments:

• by e-mail to regs.comments@federalreserve.gov. Include Docket No. R-1314 in the subject line.
• by fax to (202)452-3819 or (202) 452-3102. Identify your comment by including Docket No. R-1314 on the top of your letter.
• by regular mail to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Ave, NW, Washington DC 20551. Identify your comment by including Docket No. R-1314 on the top of your letter.
• online go to http://www.federalreserve.gov/generalinfo/foia/proposedregs.cfm. Scroll down and click Regulation AA - Unfair or Deceptive Acts or Practices [R-1314]

All comments submitted will be made available to the public. Individuals should not include account numbers, and may also choose to omit their street addresses and email addresses.

The proposed rule includes these important credit card reforms:

• Gives you more time to pay. A payment can’t be treated as late for fees or negative credit reporting unless the bill was mailed or delivered to you at least 21 days before the due date. This helps end card companies' ever-shrinking repayment periods.
• Ends tricks that increase your finance charges. Card companies routinely require you to pay off low-interest balances (like transfer balances at teaser rates) before allowing you to touch higher-interest debt (like new purchases.) That’s never in your best interest because it means your higher interest debt will never be paid off until your lower interest balance is paid off completely. The rule requires that your payments must be allocated fairly to help minimize interest charges.
• Prohibits rate increases on your existing balance. Today, when a card company jacks up your interest rate, for whatever reason, it applies that rate hike to your current balance. Under the new rule, rate increases can be applied to your existing balance only if you have a variable rate card, your promotional rate expires or is lost, or you pay your bill more than 30 days late.
• However, if the bank raises the rate on a category of transactions for everyone holding the card, they can raise your minimum payment slightly so that you will pay the balance more quickly, in about 5 years.
• Eliminates hidden interest charges. Today, some card companies charge interest even on debt repaid during the grace period. The proposed rule would end that.

For a short summary of the proposed rule, go to: http://www.consumersunion.org/pdf/CreditCardReformShortSummary.pdf

Read the full proposal here: http://www.ots.treas.gov/docs/7/73419.pdf. The real substance starts on page 28942 of this long document.

Summary of Unfair and Deceptive Practices
Credit Cards and Overdraft Practices

On May 2, 2008 the Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration issued a joint proposed rule (Regulation AA) that would define certain practices in credit cards and in overdraft loan programs as unfair or deceptive. ¹

The proposed rule, if adopted, would protect consumers from certain unexpected increases in the interest rate charged on pre-existing credit card balances, forbid credit card companies from imposing interest charges using the "two-cycle" billing method, require that consumers receive a reasonable amount of time to make their credit card payments, and prohibit the use of payment allocation methods that unfairly maximize interest charges and deprive the consumer the benefit of promotional interest rates.

The proposed rule is only the first step in a three step process. The agencies are accepting comments on the proposal until August 4th, 2008. Consumers Union is asking individuals and organizations to file with the Federal Reserve Board, though comments filed with any of the three agencies will be shared among them. This will provide the Federal Reserve Board with ammunition to hold strong against attempts by the banks to weaken the rule. Information on how to comment can be found at the end of this document and online at: http://www.creditcardreform.org/learn.html.

The rule proposes seven key provisions regarding credit card company practices.

Restricts increases in APR

The proposed rule prohibits credit card companies from applying an increased APR to an outstanding balance except in three circumstances. The prohibition does not apply to: 1) variable rate cards, 2) when a promotional rate is lost or expires, or 3) if the minimum payment is not received within 30 days after the due date. If a consumer loses the promotional rate, the proposed rule would limit increases in the interest rate only to a regular rate, not a higher penalty rate.

Also, the proposed rule would require that when a credit card company raises the rate on a category of transactions for everyone holding the card, it must give people who owe money in that category either five years to pay off the balance at the old rate or an increased minimum payment that has no more than twice as much going to the principal as the old minimum payment.

Time to make a payment

Under the proposal, credit card companies would be prohibited from treating a payment as late unless consumers have been provided a reasonable amount of time to make the payment. If a bill is mailed or delivered at least 21 days before the due date, it would be considered reasonable.

If a credit card company offers a grace period, the current law requires that it mail a bill at least 14 days before the due date so that the consumer has enough time to take advantage of the free time. The proposal explicitly exempts grace periods from the new 21 day rule. Therefore the 14 day rule will still apply when determining whether a consumer has lost the grace period.

Payment allocation

Credit card companies would be required to more fairly apply the payments that cardholders make to balances with different interest rates under the proposed rule. Payments made in excess to the minimum payment will have to be allocated in a manner that is no less beneficial to the consumer than one of the following methods: 1) apply the entire amount to the balance with the highest APR, 2) split the payment equally among the balances, or 3) split the payment proportionally among the balances.

Credit card companies would also be prohibited from denying consumers a grace period on purchases solely because they have not paid off a balance at a promotional rate.

Overlimit fees

Credit card companies would be prohibited from assessing a fee if a consumer exceeds the credit limit on an account solely due to a hold placed on the available credit.

Two-cycle billing

Under the proposed rule, a credit card company could no longer reach back to an earlier billing cycle when calculating the amount of interest charged in the current cycle.

Security deposits and issuance fees

The proposal restricts credit card companies from financing fees and charges for opening a credit card where the fees and charges total more than half the credit limit. This part of the rule should go further. The rule should say that it is unfair to offer a credit card where the fees to open the account are more than 10% to 25% of the credit limit, whether or not those fees are financed.

Advertising disclosure for firm offers of credit

The proposal requires a new disclosure on advertisements of credit with multiple APR’s or credit limits.

The rule also proposes two provisions related to overdraft loan programs in connection with consumer deposit accounts.

It is common practice for banks to automatically enroll customers in overdraft loan programs even when the customer does not request this expensive form of credit. These services result in fees (which average $34 per transaction) when the bank covers a transaction that overdraws an account. Banks claim that these “services” benefit consumers but in reality overdraft programs are small loans with abusive terms that cost consumers almost $18 billion per year for approximately $16 billion in loans.²

Opt out of overdraft loan programs

The proposed rule would create an opt-out right for overdraft loan programs. It would require banks to provide consumers with notice and an opportunity to opt out of the payment of overdrafts, once before an overdraft fee or charge is assessed and again during any statement period in which an overdraft fee is assessed.

Consumer advocates believe this does not go far enough because it does not require an opt-in, particularly for debit card transactions. Though the proposed rule acknowledges that overdraft loan programs can be unfair and deceptive, it fails significantly by requiring consumers to opt out, rather than having them affirmatively opt in to these high cost programs.

Debit holds

The proposal will prohibit banks from assessing an overdraft fee when the overdraft would not have occurred but for a debit hold placed on funds in the account that exceeds the actual purchase amount.

This provision is a positive step towards curbing an unfair practice, but it does not go far enough. The rule ignores the issue of overdraft fees and bounced check (NSF) fees caused by a check hold rather than by a debit hold. A check hold is a delay in the use of deposited funds. Consumers whose banks choose to impose long check hold times may still get stuck with overdraft fees or bounced check fees due to this practice. The rule should be strengthened to recognize that it is an unfair practice for a bank to charge an overdraft fee or bounced check fee for a problem caused by the bank's decision to place a hold on the consumer's check deposit.

There is more for banking regulators to do to curb unfair practices that are not included in the proposed rules.

Missing items related to unfair credit card practices:

• Limits need to be placed on how high credit card companies can make “penalty” interest rates and how long they are permitted to keep consumers at these often extremely high interest rates.
• Fees to pay a credit card by phone or internet should be prohibited.
• Credit card companies should not be able to raise interest rates and change the terms of a credit card for future purchases at "any time for any reason.”
• Young adults need protection from abusive credit card practices, on and off college campuses.
• No more than one overlimit fee should be permitted during a single billing cycle.
• Companies should be prohibited from offering credit cards where the fees to open the account are more than 10% to 25% of the credit limit.
• Consumers who have been prescreened should only receive advertisements for interest rates and credit limits for which the consumer is likely to qualify.

Missing items related to unfair deposit account practices:

• Banks should not be able to charge overdraft fees or bounced check fees when the overdraft would not have occurred but for a hold placed on deposited funds.
• Banks should be required to deny a debit card transaction, rather than trigger an overdraft loan fee, if the account contains insufficient funds to cover the transaction.
• The proposed rule only requires that banks provide an opportunity for consumers to opt out of overdraft loan programs. There should be a provision requiring consumers to affirmatively opt in to these programs.

How to Comment to the Federal Reserve Board

Groups and individual consumers have until August 4th, 2008 to comment. The official name of the rule is Regulation AA - Unfair or Deceptive Acts or Practices. All comments submitted will be made available to the public. Do not include account numbers in your comment.

You can use the Consumers Union website to comment.

• Go to www.creditcardreform.org and enter your comment into the box provided.

If you file your comments directly with the Federal Reserve Board (see bullets below,) you may choose to omit your street address and email address.

• By e-mail to regs.comments@federalreserve.gov. Include Docket No. R-1314 in the subject line.
• By fax to (202)452-3819 or (202) 452-3102. Identify your comment by including Docket No. R-1314 on the top of your letter.
• By regular mail to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Ave, NW, Washington DC 20551. Identify your comment by including Docket No. R-1314 on the top of your letter.
• Online go to http://www.federalreserve.gov/generalinfo/foia/proposedregs.cfm. Scroll down and click Regulation AA - Unfair or Deceptive Acts or Practices [R-1314]

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Footnotes:

¹ Unfair or Deceptive Acts or Practices, 73 Fed. Reg. 28903 (proposed May 19, 2008) (to be codified at 12 C.F.R. pt. 227) at http://www.ots.treas.gov/docs/7/73419.pdf.
² Leslie Parrish and Peter Smith, Billion Dollar Deal, Center for Responsible Lending, Sept. 24, 2007, at http://www.responsiblelending.org/pdfs/billion-dollar-deal.pdf.

Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Ave, NW
Washington DC 20551

Re: Regulation AA - Unfair or Deceptive Acts or Practices [R-1314]

Dear Ms. Johnson:

* __________[insert your organization name]________* appreciates the opportunity to file comments in support of Regulation AA - Unfair or Deceptive Acts or Practices [R-1314], the recent proposal to curb unfair and deceptive credit card and overdraft practices. *Suggested language: We support the credit card aspects of the rule, while also suggesting that protection is needed against additional unfair credit card practices beyond those covered in this proposed rule. We believe that stronger protection against unfair practices in bank overdraft programs is also needed.*

*Describe your organization, its mission, type of work, and types of people served.*

*Please describe some of what you’ve observed about the types of credit card problems you’ve seen with your organization’s members, clients, or service population. Your views or knowledge on how these credit card difficulties have affected your constituency will be very useful to support the proposed rule. Since the Fed’s power is over unfair or deceptive practices, it will be most effective to describe problems that were caused by contract terms and surprising practices. The bullets below describe what the rule covers, but you may also wish to describe all the credit card practices your organization has seen that you think are unfair and should be stopped, even those not covered by this proposal.*

We support the following credit card provisions from the proposal.

* NOTE: These are the points we recommend. You may wish to use this language or to rephrase these points in your organization's own words to be even more effective.*

• Restricting increases in APR

We support restricting credit card companies from increasing the interest rate on outstanding balances so that people don’t get hit with much higher interest rates when they are less than 30 days late with their payment. We also support the restriction that when a low promotional interest rate, such as a balance transfer rate, is lost, then the new rate would be only the regular interest rate instead of a much higher penalty interest rate.

We support the proposal’s requirement that when a credit card company raises the rate for a category of new charges, consumers who carry a balance at the old interest rate would now be protected from a fee for carrying a balance and would be given five years to pay off the balance at the old interest rate.

• Ensuring a reasonable time to make a payment

We support prohibiting credit card companies from treating a payment as late unless consumers have been provided a reasonable amount of time to make the payment. The 21 day time period in the proposal is an improvement, but we prefer a time period of 30 days.

• Fair application of payments

We support the proposed rule that would require credit card companies to more fairly apply the payments that cardholders make to balances with different interest rates. We also support the proposal to prohibit credit card companies from denying consumers a grace period on purchases solely because they have not paid off a balance at a promotional rate.

• Unfair overlimit fees

We support prohibiting a credit card company from assessing a fee if a consumer exceeds the credit limit solely due to a hold placed on the available credit. Individuals should not have to pay fees because of the processing methods of the credit card company.

• Two-cycle billing

We support the provision in the proposal that prohibits a credit card company from reaching back to an earlier billing cycle when calculating the amount of interest charged in the current cycle.

• Security deposits and issuance fees on high-fee credit cards

We support the proposed restrictions on financing fees and charges for opening a credit card where the fee or charge is more than half the credit limit, but we think this part of the rule should go further. The rule should say that it is unfair to offer a credit card where the fees to open the account are more than 10% to 25% of the credit limit, whether or not those fees are financed.

• Advertising disclosure for firm offers of credit

We agree that it is an unfair practice for a credit card company to advertise low interest credit cards for which very few people qualify, but another standard form disclosure is not enough to address this problem. If a creditor uses the consumer's credit score or record to screen for an offer of a credit card, then that offer should describe only interest rates and credit limits that a consumer is in fact likely to qualify for.

*[You may include the following paragraphs to express your views about the overdraft provisions in the proposal. If you’d rather not comment on the overdraft provisions, just erase this section, but please do submit comments on the credit card protections.]*

We support the following provisions from the proposal but feel the rule can go further to protect consumers from unfair practices regarding overdraft loan programs.

*[It is a common practice for banks to automatically enroll customers in overdraft loan programs even when the customer does not request this expensive form of credit. These services result in fees (which average $34 per transaction) when the bank covers a transaction that overdraws an account. Banks claim that these “services” benefit consumers but in reality overdraft programs are very expensive small loans.]*

• Opt out of overdraft loan programs

The proposal creates an opt-out right for overdraft loan programs. It requires banks to provide consumers with notice and an opportunity to opt out of the payment of overdrafts, once before an overdraft fee or charge is assessed and again during any statement period in which an overdraft fee is assessed.

We believe this provision does not go far enough. Overdraft loan programs are unfair to consumers unless the consumer opts in to the program before the first fee is charged.

• Debit holds

The proposal will prohibit banks from assessing an overdraft loan fee when the overdraft would not have occurred but for a debit hold placed on funds in the account that exceeds the actual purchase amount.

This provision is a positive step towards curbing an unfair practice, but it does not go far enough. The rule ignores the issue of overdraft fees and bounced check (NSF) fees caused by a check hold rather than by a debit hold. A check hold is a delay in the use of deposited funds. Consumers whose banks choose to impose long check hold times may still get stuck with overdraft fees or bounced check fees due to this practice. The rule should be strengthened to recognize that it is an unfair practice for a bank to charge an overdraft fee or bounced check fee for a problem caused by the bank's decision to place a hold on the consumer's check deposit.

*OPTIONAL SECTION- You may also wish to include the following section.*

We believe that the rule misses a number of unfair practices relating to credit card and consumer deposit accounts, and should go farther in the following ways:

• Limits need to be placed on how high credit card companies can make “penalty” interest rates and how long they are permitted to keep consumers at these often extremely high interest rates.
• Fees to pay a credit card by phone or internet should be prohibited.
• Credit card companies should not be able to raise interest rates and change the terms of a credit card for future purchases at "any time for any reason.”
• Young adults need protection from abusive credit card practices, on and off college campuses.
• No more than one overlimit fee should be permitted during a single billing cycle.
• Companies should be prohibited from offering credit cards where the fees to open the account are more than 10% to 25% of the credit limit.
• Consumers that have been prescreened should only receive advertisements for interest rates and credit limits for which the consumer is likely to qualify.
• Banks should not be able to charge overdraft fees or bounced check fees when the overdraft would not have occurred but for a hold placed on deposited funds.
• Banks should be required to deny a debit card transaction, rather than trigger an overdraft loan fee, if the account contains insufficient funds to cover the transaction.
• The proposal should include a provision giving consumers the protection to opt in to overdraft loan programs.

We look forward to the continuing work of the Board and its partner agencies to address problems for consumers in this area.

Sincerely,

Finally! Banking Regulators Propose Ending Some Of The Most Unfair and Abusive Credit Card Practices.

If something unfair has happened to you with your credit card, now is the time to tell the Federal Reserve Board about it. The Federal Reserve Board and two other federal agencies have issued a proposed rule that would restrict some of the most unfair credit card tricks and traps. The proposal could be a big win for consumers if it is not weakened.

The rule proposes to:

• Stop credit card companies from hiking interest rates on existing balances (unless you pay more than 30 days late.)
• Stop credit card companies from applying your monthly payment to low-interest debt first.
• Give you time between the bill and the due date so you can always pay on time.
• Stop interest charges on debts paid off in the previous month.

This new rule of fair play is just a proposal; the first step in a three step process. The story of your bad credit card experience can help to make sure that this new rule is finalized in a strong form. Tell the Federal Reserve Board what has happened to you and take advantage of this great opportunity to get some substantial credit card protections for consumers!

You can file your comment by going to www.creditcardreform.org and enter your comments in the box provided.

Or submit to the Fed by sending an e-mail to regs.comments@federalreserve.gov. Make sure you include Docket No. R-1314 in the subject line.

For a short summary of the proposed rule, go to: http://www.consumersunion.org/pdf/CreditCardReformShortSummary.pdf.

The Federal Reserve Board and two other federal banking agencies have released a proposed rule that aims to reform some of the most unfair tricks relating to credit card accounts and overdraft programs. The proposed rule finally offers some real protections against specific unfair and deceptive practices, not just more disclosure. Read a summary of the proposal here: http://www.consumersunion.org/pdf/CreditCardReformShortSummary.pdf.

The Fed is accepting comments on the rule which will provide the agency with ammunition to hold strong against attempts by the banks to weaken the rule. Your comments have to be filed between now and August 4th, 2008. We hope to flood the agency with stories about how individual consumers have been subject to unfair credit card practices.

Tell the Federal Reserve Board about all those times when you’ve been subject to an unfair action by your credit card company!

• Have you received your credit card bill, only to realize that it was due so soon that you had to pay it right away?

• Have you transferred a balance because of an amazingly low promotional interest rate, only to have your rate skyrocket on new purchases that can't be paid off until the low rate balance is repaid?

• Do you think it’s unfair when your credit card company suddenly decides to apply a new, higher interest rate to an old balance? Has your credit card company raised the rate on money you've already borrowed for no reason or for a flimsy reason?

This is a chance for you and your family and friends to tell the Fed that you think these practices are unfair!

How to Comment to the Federal Reserve Board

Consumers have until August 4th, 2008 to comment. The official name of the rule is Regulation AA - Unfair or Deceptive Acts or Practices. Always include the Docket number [R-1314] to be sure that the Federal Reserve Board sees your comments.

Other ways to file your comments:

• by e-mail to regs.comments@federalreserve.gov. Include Docket No. R-1314 in the subject line.
• by fax to (202)452-3819 or (202) 452-3102. Identify your comment by including Docket No. R-1314 on the top of your letter.
• by regular mail to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Ave, NW, Washington DC 20551. Identify your comment by including Docket No. R-1314 on the top of your letter.
• online go to http://www.federalreserve.gov/generalinfo/foia/proposedregs.cfm. (Scroll down and click Regulation AA - Unfair or Deceptive Acts or Practices [R-1314])

All comments submitted will be made available to the public. Individuals should not include account numbers, and may also choose to omit their street addresses and email addresses.

Let’s take advantage of this great opportunity to get some substantial credit card protections against unfair practices for consumers!

As you may already know, the Federal Reserve Board and two other federal banking agencies have released a proposed rule that aims to reform some of the most unfair practices relating to credit card accounts and overdraft loan programs. The new proposed rule finally offers some real protections, not just more disclosure. The proposal could be a big win for consumers if it is not weakened.

We have until August 4th, 2008 to flood the Fed with comments about the proposal, in an effort to provide the agency with ammunition to hold strong against attempts by the banks to weaken the rule. The Fed explicitly mentioned in the proposal that a major reason for proposing such a protective rule was the comments they received from individual consumers about their negative experiences with credit card companies. They need to hear this again!

The Fed needs to hear from real people and organizations about their opinions of the proposal and horror stories about credit card company practices. Consumers Union has put together a packet of materials to make it easy for your organization to do outreach to your constituents.

The packet includes:

1. A short overview of the proposed rule with instructions on how to comment to the Fed.
2. A four-page summary of the proposed rule.
3. A sample comment to be sent on behalf of organizations (as opposed to individuals.)
4. A sample newsletter to modify, copy, and distribute to subscribers.
5. A sample email to send to individual members.
6. A sample email to send to organizational members.

You can access and download these documents at http://www.consumersunion.org/creditcardreform/outreach.html.

This is a great opportunity to end some of the most unfair credit card company practices!

Thanks for your help.