New Credit Card Regulations

OTS has now approved new credit card regulations.  Their fact sheet includes the following summary of the regs:

1. Interest rate changes — The rule (Section 535.24) requires savings associations to disclose at account opening the annual percentage rates (APRs) that will apply to the account and prohibits savings associations from increasing APRs unless expressly permitted. Savings associations are permitted to increase a rate at the expiration of a specified period, provided that the increasing rate was also disclosed at account opening. Once an account has been open for a year, a savings association may increase the rate for new transactions by providing a 45-day advance notice, as required by Regulation Z. Savings associations may also increase a variable rate due to the operation of an index. Finally, they may increase a rate on existing balances when the consumer is more than 30 days delinquent in paying the credit card bill.

2. Reasonable time to pay — The rule (Section 535.22) prohibits savings associations from treating a payment as late unless the consumer has been provided a reasonable amount of time to make the payment. As a “safe harbor,” a reasonable time would be considered to be 21 days.

3. Payment allocation — When an account has balances with different APRs, the rule (Section 535.23) requires savings associations to allocate amounts paid in excess of the minimum payment using one of two specified methods: either allocating the excess payment to the highest interest balance, or proportionately to all balances.

4. Double-cycle billing — The rule (Section 535.25) prohibits savings associations from using the practice sometimes referred to as two-cycle billing, when a savings association imposes finance charges based on balances associated with previous billing cycles.

5. High-fee subprime cards — The rule (Section 535.26) prohibits savings associations from charging fees for the issuance or availability of credit that consume the majority of the available credit during the first year after account opening. Fees exceeding 25 percent of the available credit must be spread over no less than the first six months that the account is open, rather than charged as a lump sum during the first billing cycle.

The regs appear here.

Update: the Fed approved the regs; the relevant web page is here.

Comments

[Rob - Credit Card Debt Law]

Does anyone have any good insight into #3? I've been struggling with why the Federal Reserve would require consumers make more than the minimum payment in order to allocate the money in a manner other than the lowest interest rate balance.

[Brad]

This must be in any law in regards to credit cards. The credit card issuers must not be allowed to let the debt on the credit card increase for example in to the thousands of dollars and then for no justifiable reason increase percentage rates. A card that starts out now at 10% interest rate can suddenly become 28% or whatever the max. the law allows making it impossible to pay off.

[Scott]

I'm personally not too keen on the plans to increase interest rates.. how do you feel about this?

Debt consolidation

[Credit Guide]

This is a great post. Thanks for sharing the information with us. If I might add, I think that the economic situation that we now face should teach us all a lesson. While we all need credit, and the credit card is a very valuable part of our bartering, we need to exercise so much more prudence in how we use our credit. I do not for example, support the culture of having four or more credit cards. When this happens, this is an indication that there is a problem in managing one’s finances.

I am not much of an economist, but there are some basic rules my parents taught me, and they have worked well for me:

Rule #1: Money does not grow on a tree.

Rule #2: Do not live beyond your means. If you can’t afford it, do without it!

Rule #3: Always differentiate between your wants and your needs.

Rule #4: Do not delay settling your debt. They will overtake you.