New credit card rules approved by federal regulators in December 2008 give greater protections to consumers and families with credit cards — but not to corporate or small business cardholders.
Credit card rules approved by federal regulators in December offer new protections to consumers, but that protection has holes in it: The rules do not cover commercial credit cards — those issued to small business owners or for corporate accounts.
The new rules, which take effect July 1, 2010, offer a variety of protections to consumers. They limit interest rate hikes, ban double-cycle billing, limit upfront fees on subprime (fee harvesting) credit cards and give card users a reasonable time to pay their monthly credit card bills. The rules also require issuers to allocate payments above the minimum amount due each month to balances with the highest interest rates first — a method that reduces the amount of time it takes to pay off credit card debt.
Rules focus on consumers
Regulators from the Federal Reserve, Office of Thrift Supervision (OTS) and National Credit Union Administration (NCUA) approved the rules — the most sweeping credit card changes in nearly 30 years — in December 2008. The regulations are based on consumer protections provided in the Federal Trade Commission Act, which bans unfair and deceptive trade practices.
Changes don’t apply to commercial credit cards
But it became clear this week, during an implementation session between regulators and financial institutions, that none of the new protections apply to users with commercial credit cards.
“They apply to consumer credit cards, accounts for personal use,” Benjamin Olson, an attorney for the Fed, said Tuesday during a teleconference on unfair credit card practices jointly sponsored by the Fed, NCUA and OTS. Olson was one of three representatives from the agencies who spent nearly two hours answering questions from credit unions and other lending institutions about what the new rules do and don’t cover. The briefing was designed to get card issuers that haven’t already done so to begin making plans to implement the rules.
Commercial cards include corporate (or travel and entertainment) cards, small business debit and credit cards, fleet cards, purchasing cards and prepaid commercial cards. Many small business credit cards have been canceled or their limits drastically cut back in recent months as issuers move to reduce their risk.
Olson warned those on the conference call that although the new rules apply to consumer credit cards, the standards of unfairness outlined in the FTC Act “still apply in this situation” to commercial cards.
Military impact unclear
While it became clear this week that the new regulations will not apply to commercial credit cards, the fallout for another group was less certain. The regulators revealed for the first time that no one had anticipated what the new credit card rules would mean for military personnel returning home from active duty assignments. Under the Service Members’ Civil Relief Act, credit card issuers must lower interest rates to 6 percent for active duty* military personnel.
When they return from duty, their interest rates are then returned — increased — to previous levels. The problem is the new credit card rules limit interest rate increases to only a few circumstances. Returning from deployment is not one of them.
The question about how to treat returning service members — posed by a credit union representative — stumped Olson, the Fed attorney, during the teleconference. A record 66,000 public comments were submitted to the Fed in 2008 about the proposed rule changes, but no one asked about returning troops.
Said Olson: “It didn’t come up in the comment period. We’re now aware of this issue and we’re trying to figure out what we can do to fix it.”
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* As originally published, this article incorrectly stated that the Service Members’ Civil Relief Act covered only military personnel who are deployed. See the CreditCards.com corrections policy.
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