Research and Statistics

New rules don’t cover every credit card issue


New credit card industry rules are the most significant in three decades, but they don’t go far enough to protect consumers from credit card abuses, lawmakers and advocates say. Here’s what’s missing.

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See the later stories: Obama signs credit card reform bill into law and Interactive time line: How the credit card reform bill became law and when its provisions take effect, Card reform law’s first phase of restrictions kick in

New credit card rules finalized on December 18 are the most significant in more than three decades and will provide long-sought consumer protections. But consumer advocates, credit card users and some lawmakers say the rules don’t go far enough, fast enough.

First, there’s the issue of timing. Federal regulators have given credit card issuers 18 months — until July 1, 2010 — to implement the sweeping new guidelines. That may be too late to help millions of families struggling during the current economic downturn. (See What the new credit card rules mean to you, Interactive look at what new monthly credit card statements would disclose and How to cope until the new credit card rules take effect.)

“The number of families who are in trouble with their credit card bills is rising,” Travis Plunkett, legislative director for the Consumer Federation of America, told reporters earlier this week.

“Why are they giving such a long implementation period?” asked Chi Chi Wu, an attorney for the National Consumer Law Center, a Boston-based legal advocacy group.

Despite her reservations about the delay, Wu applauded the Federal Reserve for backing reforms. “This is a good start,” she said. “There is more work to be done.”

U.S. Sen. Carl Levin, who hosted several hearings on credit card industry practices and co-sponsored a Senate credit card bill, wrote the Fed in August 2008 urging more action: “The proposed rule would leave untouched some of the most blatantly unfair credit card practices in existence today.”

U.S. Rep. Carolyn Maloney, who sponsored and lobbied heavily for the passage of the Credit Cardholders’ Bill of Rights by the U.S. House of Representatives in September, pledged to reintroduce her bill in January when the 111th Congress convenes. The bill passed in the House but was never introduced in the Senate.

“I’ll be working with my subcommittee and Chairman [Barney] Frank to fill any gaps in protections for cardholders,” Maloney said in a statement. U.S. Sen. Christopher Dodd, chairman of the Senate Banking Committee, also vowed to push in January 2009 for a credit card bill that he sponsored.

Some protections missing
Here’s what’s missing:

A cap on interest rates and rate hikes: Levin’s bill would cap interest rate hikes at no more than 7 percent. Consumers hit with 31 percent interest rates have also pleaded for a cap on rates. One U.S. senator called for a national usury cap on consumer credit of 36 percent.

Soliciting and approving credit to minors: The version of the Maloney bill passed by the House in September included a provision to ban issuing credit cards to people under 18 who are not emancipated minors. Such a ban would avoid “getting college students and young consumers hooked on credit,” Wu says.

Late fees: Currently, late fees of $35 to $39 are charged to cardholders, regardless of the amount of money they owe on an account or how late the payment arrives. A person with a $5 balance is charged the same as someone with a $4,000 balance. “They should be reasonably related to the cost of the default,” says Wu. “If someone is late by two days, it does not cost the credit card issuer $35. “Fees are not supposed to be a profit center or penalty for default. They were supposed to be a form of damages.” Industry reports show revenues from fees have been a growing source of income for credit card issuers.

Pay-to-pay fees: Levin wants to prevent credit card issuers from charging fees to customers who make telephone or electronic payments, called “pay-to-pay.” Some issuers charge $12 to $15 for these types of payments.

Going over the limit: When card users exceed their credit limits, issuers charge over-the-limit fees. Wu and other advocates say these fees could be avoided if issuers simply declined to authorize the purchase — a practice that was common several years ago.

Says Plunkett from the Consumer Federation of America: “Our recommendation will be to codify what the Fed does if it is as strong as what they proposed in May. Then go further.”

A study released in October 2008 by the New America Foundation recommended the Fed and other regulators draft rules that focus on deterring consumers from making late payments or paying only the minimum due each month.

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See related: Obama signs credit card reform bill into lawInteractive time line: How the credit card reform bill became law and when its provisions take effect, , Regulators issue sweeping new credit card rules, What the new credit card rules mean to you, How to cope until new credit card rules take effectInteractive look at what new monthly credit card statements would disclose, House passes Credit Cardholders’ Bill of Rights, Fed backs rules to curb deceptive credit card practices, Fed moves to close timing loophole in credit card payments, Senate banking chairman: Credit card reform on tap, Proposed credit card rule changes draw massive response, Poll: Nearly 3 in 4 feel need for more credit card regulation, Obama will usher in credit card reform, observers say

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