The Fed has proposed sweeping changes for the credit card industry and is now accepting comments. MarketWatch sounded the horn in Your own bully pulpit.

The Federal Reserve is accepting comments through Aug. 4 on credit-card reform rules it proposed in May. (The deadline for comments regarding related proposals, mainly to do with credit-card disclosures, is sooner: July 18.)

Already, more than 9,300 people have commented on the sweeping set of proposed changes that, among other things, would prohibit credit-card companies in some instances from hitting you with a higher interest rate on debt you’ve already incurred.

The proposed rules also would prohibit “two-cycle billing,” in which banks compute interest on debt on days preceding the most recent billing cycle, a practice that can result in borrowers paying interest on debt paid off during the previous month’s grace period.

My Comment: Discover Card uses the two cycle billing method. For more on two cycle billing, please see Read the Fine Print On Credit Cards.

Credit industry disagrees

Credit-card issuers say the proposed rules are bad news for consumers.
“We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards,” said Edward Yingling, president and chief executive of the American Bankers Association, a Washington-based trade group, in a statement released soon after the Fed’s proposal.

My Comment: The credit card companies do not give a damn about consumers. Here is a better translation of their concerns: “We are deeply concerned that these rules will result in fewer fees, less revenue, and less profit for the industry.

And the Fed rules don’t really address fees. That’s where Congress may step in. A veritable feast of pro-consumer bills has been introduced over the past year or so.

In February, Rep. Carolyn Maloney, D-N.Y., introduced H.R. 5244, a bill that, among other things, would end “universal default” — when a credit-card issuer raises a consumer’s interest rate based on late payments to other, unrelated creditors. The bill would also prohibit “any time, any reason” changes in credit-card terms, with certain exceptions.

Sen. Chris Dodd, D-Conn., recently outlined a bill he intends to introduce with similar provisions to Maloney’s, such as requiring banks mail statements 21 days before the bill is due rather than the current 14, according to Dodd’s statement.

In May 2007, Sen. Carl Levin, D-Mich., introduced S. 1395, which proposes a cap on “penalty” interest-rate hikes to no more than seven percentage points above the previous interest rate. The bill would also prohibit charging interest on fees, among other provisions.

Sen. Robert Menendez, D-N.J., introduced S. 2753 in March. Like Dodd’s proposal, the bill limits the ways in which banks offer credit to people under age 21. Also, it would prevent late-payment fees on any payment postmarked by the payment date, among other changes.

Reform Is Coming

Credit card reform as well as a potential rewrite of the bankruptcy reform act of 2005 are very likely under the next Congress. Please see Bank of America’s Parking Meter Play for more discussion of this theme.

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Mike “Mish” Shedlock
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