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Curbing Credit Card Charges
by Daniel Sorid | May 2 2008
Expanded and Updated: Federal Reserve regulations would end some lucrative industry practices that have long irritated consumers.
The Federal Reserve on Friday proposed sweeping regulations of the business of consumer credit, curbing some of the credit-card companies' most reliable moneymaking practices.
If enacted, the rules would prohibit card companies from boosting interest rates on outstanding balances except in limited circumstances and ensure that payments are allocated to the most expensive debts, at least in part.
"These rules are a big deal," said Elizabeth Warren, a law professor at Harvard University. "The credit-card companies have been using whatever tricks and traps they want in credit-card agreements. These rules signal that those days may soon be over."
But every regulation comes with a cost, and these are no exception. The Fed acknowledged that the card companies could be expected to mitigate their losses by raising rates overall, eliminating discounts and promotions, and restricting credit.
But the greater impact is likely to fall on credit-card issuers. Shares of Capital One Financial, one of the largest credit-card lenders, fell more than 1 percent on Friday, as Wall Street analysts calculated the effects on the industry's bottom line.
A pitched lobbying battle in Washington is almost inevitable as these proposed rules move toward adoption. But Warren said she thinks it will be hard for banks and other issuers to derail the reforms.
The card companies will fight them, and they have billions of dollars to spend to protect their profits," Warren said. "But consumers are getting fed up, and people in Washington are beginning to realize that. Whether these are the final changes or whether the changes come from Congress or elsewhere doesn't matter so much. What matters is that change is coming."
The Fed's policy proposals went beyond its previous efforts to increase disclosure to cardholders. Disclosure, the Fed found in its research, failed to clear up the public's confusion about cards' terms and conditions.
New Credit Card Regulations - Portfolio.com
by Daniel Sorid | May 2 2008
Expanded and Updated: Federal Reserve regulations would end some lucrative industry practices that have long irritated consumers.
The Federal Reserve on Friday proposed sweeping regulations of the business of consumer credit, curbing some of the credit-card companies' most reliable moneymaking practices.
If enacted, the rules would prohibit card companies from boosting interest rates on outstanding balances except in limited circumstances and ensure that payments are allocated to the most expensive debts, at least in part.
"These rules are a big deal," said Elizabeth Warren, a law professor at Harvard University. "The credit-card companies have been using whatever tricks and traps they want in credit-card agreements. These rules signal that those days may soon be over."
But every regulation comes with a cost, and these are no exception. The Fed acknowledged that the card companies could be expected to mitigate their losses by raising rates overall, eliminating discounts and promotions, and restricting credit.
But the greater impact is likely to fall on credit-card issuers. Shares of Capital One Financial, one of the largest credit-card lenders, fell more than 1 percent on Friday, as Wall Street analysts calculated the effects on the industry's bottom line.
A pitched lobbying battle in Washington is almost inevitable as these proposed rules move toward adoption. But Warren said she thinks it will be hard for banks and other issuers to derail the reforms.
The card companies will fight them, and they have billions of dollars to spend to protect their profits," Warren said. "But consumers are getting fed up, and people in Washington are beginning to realize that. Whether these are the final changes or whether the changes come from Congress or elsewhere doesn't matter so much. What matters is that change is coming."
The Fed's policy proposals went beyond its previous efforts to increase disclosure to cardholders. Disclosure, the Fed found in its research, failed to clear up the public's confusion about cards' terms and conditions.
New Credit Card Regulations - Portfolio.com
