Government Cracking Down On Anti-Consumer Credit Card Practices

In a surprising departure from the norm, the government is actually cracking down on some of the more egregious credit card practices. Usually they say that including more tiny print is sufficient enough consumer protection. Some things they’re addressing: creating a mandatory minimum payment period, forbidding double-cycle billing, and prohibited APR from being raised on an outstanding balance. The proposals are simply that, proposals, at this point, with finalization expected by year’s end, and we’ll see what happens after all the exceptions and industry lobbying groups get factored in the equation. The specific anti-consumer credit card practices getting attacked, inside…

From the Office of Thrift Supervision press release:

1. Reasonable Time to Make Payments – Institutions would be prohibited from treating a payment as late unless consumers have been provided with a reasonable amount of time to make payment. The proposed rule would create a safe harbor for institutions that adopt reasonable procedures to ensure that periodic statements are mailed or delivered at least 21 days before the payment due date.

2. Payment Allocation. – When different annual percentage rates apply to different balances, institutions would be prohibited from allocating any amounts paid in excess of the minimum payment in a manner that is less beneficial to consumers than one of three methods. For example, institutions could apply the entire amount first to the balance with the highest annual percentage rate or split the amount equally among the balances. When an account has a discounted promotional rate balance or a balance on which interest is deferred, institutions would be required to use payment allocation practices that give consumers the full benefit of the discounted rate or deferred interest plan.

3. Interest Rate Increases on Outstanding Balances – Institutions would be prohibited from increasing the annual percentage rate on an outstanding balance unless certain exceptions apply. For example, an institution could increase the variable rate if a promotional rate has expired or if the cardholder’s payment is delinquent (e.g., the minimum payment has not been received within 30 days of the due date).

4. Fees from Credit Holds – Institutions 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 – unless the amount of the transaction would also have exceeded the credit limit.

5. Balance Computation Methods (“Double Cycle Billing”) – Institutions would be prohibited from computing finance charges on outstanding balances based on balances in billing cycles preceding the most recent billing cycle. The proposed rule would prohibit institutions from reaching back to prior billing cycles when calculating the amount of interest charged in the current cycle, a practice that is sometimes referred to as two- or double-cycle billing.

6. Fees/Deposits Charged to the Account for the Issuance of Credit – Institutions would be prohibited from charging to the credit card account fees or security deposits for the issuance or availability of credit (such as account-opening fees or membership fees) if those fees or deposits utilize the majority of the available credit on the account. In addition, the proposal would require that fees or deposits that exceed 25% of the credit limit be spread over the first year, rather than charged as a lump sum at account opening. Institutions would not be prohibited from issuing credit cards that require a consumer to pay a security deposit if that deposit is not charged to the account. Such an approach can be a means of repairing or building credit.

7. Firm Offers of Credit – Institutions making firm offers of credit that advertise multiple annual percentage rates or credit limit ranges would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest annual percentage rate and highest credit limit advertised.
For Overdraft Programs:

1. Opt Out – Institutions would be prohibited from assessing a fee for paying an overdraft unless they provide a consumer with: the right to opt out of payment of overdrafts; a reasonable opportunity to exercise the opt-out; and the consumer does not opt out. The proposed opt-out right would apply to all transactions that overdraw an account regardless of the whether the transaction is, for example, a check, an automated clearinghouse (ACH) transaction, an ATM withdrawal, a recurring payment, or a debit card purchase at a point of sale.

2. Fees from Debit Holds – Institutions would be prohibited from assessing an overdraft fee if the overdraft is caused solely by a hold on funds that exceeds the actual purchase amount of the transaction, unless this purchase amount would have also caused the overdraft.

Summary of Practices Addressed in Proposed Rule on Unfair or Deceptive Acts or Practices [Press Release]
Fed to Pursue Aggressive Checks on Credit Cards [Washington Post] (Thanks to Brandon!)
OTS publishes summary of unfair credit card rule proposal [U.S. PIRG Consumer Blog]


(Photo: samwilkinson)

Comments

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  1. Coelacanth says:

    About bloody time…

  2. Pro-Pain says:

    What the hec took them so long?

  3. Bloberry says:

    “sufficient enough” is redundant. Sufficent will do.

  4. Bloberry says:

    @Bloberry:

    Except that you should spell “sufficient” correctly! :-)

  5. ThunderRoad says:

    How about a requirement that they increase the size of the “fine print” by a couple points to make it readable?

  6. cuddles71 says:

    @ThunderRoad: Because then you would be able to read it, and not agree to it!

  7. I’d still like to see some type of law that limits their rights to raise your APR if you default on another card… (Unless I’m behind on the times and they have, which is fairly common for me)

    For instance, you have 4 credit cards, and 1 you were a whole whopping 7 days late paying. The other cards couldn’t raise the limit unless you were in default on at least 1/2 of your accounts, and defaulted at least twice in a 6 or 12 month period.

    Just an example…

  8. tedyc03 says:

    @verucalise: I don’t know what the current state of affairs is for Universal Default (which is what that is called). Anyone know?

  9. sisedi says:

    This is precisely why I’ve never accepted a credit card offer from anyone.

  10. @tedyc03: All I read is that some companies can raise your rates for a late payment on ANYTHING in your credit report, including phone bills!

    Read this:
    [www.bankrate.com]

  11. speedwell (propagandist and secular snarkist) says:

    @sisedi: Same here. I wouldn’t do business with any other company on the terms that credit card companies offer. No other company would dare ask.

  12. sisedi says:

    @speedwell: I couldn’t imagine applying their rules to other services I purchase. If DishTV knew I cancelled Comcast subsidiary after my promotion expired then Dish would increase my fees when it came closer to the end of their offer and suddenly increase my rate as well.

    And if I watched too many channels or left the TV on I would be penalized and my box would be frozen. Lest we forget if I defaulted on even one payment, Comcast, Verizon, AT@T, Warner, would all know I was a bad TV watcher and give me much larger monthly rates than typically advertised.

  13. Snarkysnake says:

    Reading this, it seems that if passed (and not eviscerated by the banking lobby), these measures would stop about 85% of the abuses of these companies. I could live with this.
    Now what ? Do we as consumers call the Office Of Thrift Supervision ? Our congressperson ? How do we make our voices heard above the steady hum of bullshit that is sure to follow from Cap One,Chase and the other pirates that have gotten us here ?

    I hope that Consumerist will put up the appropriate numbers and addresses so that we can mobilize.

  14. SkokieGuy says:

    Suprisingly, I have already received a notice of proposed changes from one of my credit card companies. They state:

    1. Reasonable Time to Make Payments – For your convenience, we are now mailing all statements from Latvia. (21 days in advance)

    2. Payment Allocation. – For your convenience, you may select which of three methods you prefer us to use to apply your payment. A payment selection fee will apply.

    3. Interest Rate Increases on Outstanding Balances – For your convenience, we’d like to remind you that you agreed that we may change your terms at any time, for any reason and if you don’t like it you can’t sue. Binding arbitration baby!

    4. Fees from Credit Holds – For your convenience we continue to be unable to not deny transactions that would exceed your credit limit – we’re just not bright enough to figure out how!

    5. Balance Computation Methods (“Double Cycle Billing”) – For your convenience, we have now instituted triple-cycle billing, a concept so complex, we don’t even know how to explain it.

    7. Firm Offers of Credit -In the interest of full disclosure, we’d like you to know that are best rates are normally issued to female credit card applications with giant hooters.

  15. Jevia says:

    I like the one about payment allocation. I hate that on one of my cards, I have a balance that is 2% (from a balance transfer) and another balance at the 15% rate, so both earn a ‘finance charge,’ but when I make my payment, the entire payment but for like $1 is allocated to the lower rate balance, so the finance charge of the higher rate just adds to the balance of the higher rate and is never paid off.

    In essence, the credit card is moving the balance from the lower rate to the higher rate, rather than allocating my payment to pay all finance charges first, then the rest to the lower rate. I’m working to pay off this card now as fast as I can.

  16. johnva says:

    @verucalise: Several of the major credit card companies agreed to voluntarily stop the practice of universal default. I don’t know if there are any still doing it, but one of mine sent me a notice saying that they were ending both universal default and two-cycle bill computation.

  17. johnva says:

    @johnva: Of course, I should note that they would not have stopped if committees in Congress had not pressured them to do so under threat of more extensive regulation.

  18. This would be great. I’ll be surprised when it happens.

  19. Pennsylvanian123 says:

    I got a notice from Captial One this week and all of the fees are going up to $39 for over-limit, late payments, etc. Surprise, surprise.

    They’ll get their money either way from people who aren’t responsible with their use of credit, but getting some of this blatant loan-sharking-type behavior in check can’t hurt. I doubt it will be anything like this when it finally passes though, if it ever does.

  20. @johnva: Credit card companies agreeing to stop universal default doesn’t mean they won’t do it again. As soon as one company needs extra profits, someone is going to be tempted to put his hand in the cookie jar.

  21. Orv says:

    My guess is these rules will be gutted before they go into effect, but as a shot across the bow to warn the industry they’re getting out of line this is a nice step. Sort of like how investigations into gas prices never turn up any wrongdoing, but the threat of an investigation almost always causes prices to be lowered.

  22. lemur says:

    1. Reasonable Time to Make Payments – Institutions would be prohibited from treating a payment as late unless consumers have been provided with a reasonable amount of time to make payment. The proposed rule would create a safe harbor for institutions that adopt reasonable procedures to ensure that periodic statements are mailed or delivered at least 21 days before the payment due date.

    I don’t have time to investigate this right now but the language worries me. Why do they need to create a “safe harbor” for any of those institutions? What I understand when I read “safe harbor” is something like “as long as you follow these rules you are immune from lawsuits of kinds A, B and C.”

    Is this another one of those initiatives which are supposed to protect the interests of customers but end up protecting the interests of established businesses?

  23. Pop Socket says:

    These would be a good start. Why they aren’t rules governing these abuses already is beyond me. Arbitrarily moving due dates around to trick people with third party automatic payment plans would also be something I’d like to see stopped.

  24. Bog says:

    Here is what is also needed
    1) A total prohibition on Universal Default. A late payment on another card or account may not be used to raise rates or charge new fees.

    2) A return to reasonable usury laws and rates. Some credit cards are charging as high as 33%. A national limit of 18% should be set.

    3) Penalties and fees such as late payments and over limit would not be subject to interest charges. Fees would be limited to $20 per late payment per month, and $20.00 per overdrafts that are paid with a maximum of $100.00 per day.

  25. Jevia says:

    Here’s another issue. I have two credit cards with one company, one with a balance, one without. The company sends me some of those ‘balance transfer/purchase checks,’ but the card without a balance only offers the low transfer rate for six months, while the other card with the balance gets the rate until paid off.

    I figured out that transferring another card’s balance for only six months will only save me $36 (because of the transfer fee). So why do that? If they offered me the transfer until paid off, I’d do it, but its not worth it for six months for only $36 savings. Too bad they only offered the ‘until paid off’ transfer on the card with the balance, instead of the one without a balance (where I could transfer more money to save me money and make the credit card company more money). Their loss.