Though most of the proposed Regulation Z changes deal with improving consumer understanding through well-designed information tables, one of the most important changes involves time. The Fed thinks creditors should give 45 days’ prior notice of any changes in the interest rate or other account terms. Currently, credit card issuers can change the interest rates, due dates and other terms with only 15 days’ notice.
45 days’ notice
Account opening disclosures
Periodic statement disclosures
Changes in credit card terms
Subprime credit cards
Under the proposed rule changes, they must also give 45 days’ prior notice before increasing your interest rate because of delinquency or default. The board argues that with more notice, consumers will have more time to explore other credit options. Any changes in terms included on monthly statements must be disclosed in a table format rather than buried in the fine print.
The National Consumer Law Center contends this measure doesn’t go far enough and that stronger measures are needed to quash changes in terms by creditors: ” … (T)he ultimate issue is not whether consumers need more time for a change-in-terms notice, but that changes in terms should not be permitted at all in credit card contracts.” Read more (Page 68)
Lenders, however, say that they need time to quickly respond when account holders become greater credit risks. American Express cited a September 2007 industry study that found that 31.6 percent of credit card accounts assessed with penalties were written off within two years. Increasing APRs for these accounts helps offset those losses for creditors. “The proposed 45-day notice would generally delay the use of that tool for two months or more,” the company says in its statement.
The American Bankers Association and America’s Community Bankers say extending the notice period for customers whose interest rates have increased will make little difference to borrowers with bad credit — since they are unlikely to be able to get better rates elsewhere if they shop around. “Those customers who merit lower rates will have attractive options in a very competitive market and simply move to a competitor. [T]he 45-day period will simply only change the timing of the rate change, not the rates available to a customer … .” Read more (Page 19)
American Express notes that the 45-day rule will turn out to be 60 days for many creditors because the notices would straddle two monthly billing cycles. “These changes modify the fundamental terms of the customer’s agreement. It is therefore appropriate that the customer be given additional time to consider new terms … Read more (Page 14)
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