Americans for Fairness in Lending

The Wall Street Journal

Now's your chance to air that gripe about the unexpected interest-rate increase on your credit card.

The Federal Reserve is accepting public comments through Aug. 4 on new credit-card rules it proposed in May. (The deadline for comments regarding some related proposals, mainly regarding credit-card disclosures, is July 18.)

Potential Changes

Among other things, the sweeping set of changes would prohibit credit-card companies, in some instances, from hitting you with a higher interest rate on debt you've already incurred.

Another change: Issuers would be required to apply at least a portion of consumer payments to higher-rate debt. Some issuers put payments first to cheaper debt, such as balance transfers that have low rates, rather than to higher-rate purchases.

The proposed rules also would prohibit "two-cycle billing," in which banks compute interest on debt on days preceding the most recent billing cycle, a practice that can result in borrowers paying interest on debt paid off during the previous month's grace period.

Credit-card issuers say the proposed rules are bad news for consumers. "We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards," Edward Yingling, president and chief executive of the American Bankers Association, a Washington, D.C., trade group, said in a statement released soon after the Fed's proposal.

"For example, the proposal would greatly restrict the ability of card companies to charge interest rates that reflect the risks of different consumers," the statement said. "If card companies cannot fully reflect risk, then millions of consumers with good credit histories will end up with higher rates."

But plenty of consumers disagree, judging by some of the comments posted to the Federal Reserve site. Already, more than 9,000 people have commented.

To comment, go online to federalreserve.gov and click on "Consumer Information" at the top of the page. Click on "Proposed Rules for Credit Cards and Overdraft Services," scroll to the bottom of the page, and under "Regulation AA," click on "Submit comment."

The Federal Reserve says it expects to issue a final ruling by year end.

Consumer groups generally applaud the Fed's proposals. "The Fed's rules were much better than we expected," says Lauren Saunders, managing attorney of the National Consumer Law Center's Washington office. "There are some real improvements in them."

Still, consumer advocates would like to see rules go further. For instance, the proposal to apply payments to higher-rate debt applies only to money consumers send in above the minimum payment. And the rules do little to address fees.

Bevy of Bills

That's where Congress may step in. A veritable feast of pro-consumer bills has been introduced over the past year or so.

In February, Rep. Carolyn Maloney (D., N.Y.) introduced H.R. 5244, a bill that, among other things, would end "universal default." That's when a credit-card issuer raises a consumer's interest rate based on late payments to other, unrelated creditors. The bill would also prohibit "any time, any reason" changes in credit-card terms, with certain exceptions.

Sen. Chris Dodd (D., Conn.) recently outlined a bill that he intends to introduce with similar provisions to Rep. Maloney's, such as requiring banks to mail statements 21 days before the bill is due, rather than the current 14.

In May 2007, Sen. Carl Levin (D., Mich.) introduced S. 1395, which proposed a cap on "penalty" interest-rate increases at no more than seven percentage points above the previous rate. And it would prohibit interest on fees, among other provisions.

Sen. Robert Menendez (D., N.J.) introduced S. 2753 in March of this year. Like Sen. Dodd's proposal, the bill limits the ways in which banks can offer credit to people under age 21. Also, it would prevent late-payment fees on any payment postmarked by the due date, among other changes.

Many members of Congress "are very, very concerned" about credit-card practices, says Travis Plunkett, legislative director of the Consumer Federation of America, a Washington, D.C.-based advocacy and research organization. "I actually think that action by the Fed will encourage Congress to further investigate and act on abusive lending practices" not covered by the Fed's rules.

He says "it's unlikely anything will pass two houses of Congress this year, but there's a reasonably good chance we'll see a bill pass the House."