The Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration approved the regulation, which prohibits banks from certain practices like applying interest payments in ways that maximize penalties, and forces lenders to be more transparent about their billing practices.
"These protections will allow consumers to access credit on terms that are fair and more easily understood," Federal Reserve Chairman Ben Bernanke said in a statement.
The regulations mark an end to double-cycle billing, which averages out the balance from two previous bills. That means that consumers who carry a balance will no longer get hit with retroactive interest on their previous month's bill. And credit card companies will no longer be able to raise the interest rates on pre-existing credit card balances unless a payment is over 30 days late.
Consumers will also be given a reasonable amount of time to make payments, and payments will be applied to higher-rate balances first, to reduce interest penalties and fees.
Credit card statements will clearly list the time of day that a payment is due, and any changes to accounts will be in bold or listed separately.
And, finally, no more universal defaults - a policy that allowed credit card issuers to increase the interest rate on one card if a customer missed a payment on another card.
Trouble keeping upIn the midst of a credit crunch, Americans have about $976.3 billion in revolving credit and 4.9% of all credit cards were delinquent in the third quarter, according to the latest data from the Federal Reserve.
"The U.S. is experiencing the worst economic conditions in decades. Unprecedented debt loads are crushing many families," said Linda Sherry, a director of nonprofit advocacy group Consumer Action, in a statement. "Consumer Action is pleased that the Fed has taken this step to provide substantive protections to cardholders," said Sherry.
Travis Plunkett, the legislative director for the Consumer Federation of America, a lobbyist and advocacy group, said new rules are "essential" at a time when "so many Americans are falling behind on their loans."
Representatives from the banking industry argue that while many of the changes are consumer friendly, there might be a downside to increased regulation that should not go unnoted.
"While the new rules are designed to increase protections for consumers, the Fed itself has recognized that they may result in increased costs for most card users and reduced credit availability, particularly for consumers with lower credit scores or limited credit history," said Edward Yingling, president and CEO of the American Bankers Association said a statement.
Not only could card companies have to impose higher interest rates across the board to offset losses, but low introductory offers and zero-percent balance transfers are likely to be scaled back as well, explained Peter Garuccio, a spokesman for the American Bankers Association.
In addition, "an overhaul of the market for credit cards - of this magnitude - will require time for full implementation," Yingling said.
But some consumer advocates argue that these reforms don't go far enough, fast enough.
"The Board has given banks another year and a half to continue indiscriminate interest rate increases on consumers with historically high credit card balances. When they can least afford it, cardholders will be vulnerable to the piling on of unconscionably high finance charges. This may be the straw that breaks the camel's back," Sherry said.
Plunkett said he hopes Congress will pass more sweeping credit card reforms next year that address a number of other "abusive practices" including "reckless lending to young people and high fees."
Sen. Christopher Dodd and Rep. Carolyn Maloney have both proposed credit card legislation that would impose even more constraints on issuers.
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