The non-profit group Consumers Union last week urged the Fed to crack down on credit card companies and put a stop to the onslaught of increasingly abusive lending practices, which have intensified over the last six months.
The group, which also publishes Consumer Reports, appealed to the Federal Reserve Board to stop the interest rate hikes and other aggressive lending practices, which have followed on the heels of the new Credit CARD Act passed in May of this year. The new rules are not set to go into effect until February 22, 2010, and credit card companies have been using the interim to increase interest rates and otherwise tighten terms, effectively undermining many of the new consumer protections.
As the country’s chief financial regulatory agency, the Fed is charged with spelling out the details of how the new provisions of the Credit CARD Act are to be implemented. In this capacity, the Fed has the power to put a stop on the many new changes to credit card terms card issuers have instituted to circumvent key provisions of the new law.
“There’s no question that many credit card companies are using the long implementation time before new regulations go into effect to gouge consumers and test new ways to evade the law,” said Lauren Bowne, staff attorney with Consumers Union. “The Fed should use its power to make sure consumers are protected from these unfair practices that undermine the safeguards Congress intended to enact.”
In particular, Consumers Union appealed to the Fed to stop a series of new abusive practices and institute additional protections, such as:
- Immediately stop interest rate hikes with new, deceptive terms, which will soon be illegal under the new Credit CARD Act;
- Protect consumers from credit limit cuts that mar credit scores;
- Ban the new practice of putting a fixed minimum rate on variable rate cards;
- Give consumers more options to earn their way out of a penalty interest rate;
- Give written notice about consumers’ new opt-in right for overlimit coverage.
The Fed has considerable powers over how the new law will be implemented, and in the past has responded to consumer outcry over abusive credit card practices. At the end of 2008, prior to the passing of the new Credit CARD Act, Federal regulators adopted a comprehensive set of new rules to shield cardholders from interest rate increases on existing account balances along with other changes. The new rules, along with numerous other provisions, were incorporated into the new Credit CARD Act, which also moved the effective date for the new changes up from July, 2010 to February, 2010.
Despite the appeal, it is doubtful that the Fed will use its powers to give real teeth to the new consumer protections. The Fed has been repeatedly criticized by lawmakers for failing to step in to guard consumers from banking industry abuses, despite repeated demands from members of Congress.
Senate Banking Committee Chair Chris Dodd (D.-Conn), recently proposed to strip the Fed of some of its power and create a new, independent financial watchdog agency to oversee the credit card industry and other financial products.
“When consumer protections are handled by regulators whose primary responsibility is to safeguard the profitability of the companies they regulate, consumer protections don’t get the attention they need,” Dodd noted in a statement accompanying the proposed legislation.
With all eyes now on the Fed, it remains to be seen if consumers will get any additional protection, or if credit card companies will be allowed to use the time leading up to February 22, 2010 to further circumvent the new credit card rules.
