On May 2, 2008, the Federal Reserve released a series of proposed rules that would restrict current practices of the credit card industry. Specifically:
- Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.
- Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.
- Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.
- Banks would be prohibited from imposing interest charges using the “two-cycle” method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.
- Banks would be required to provide consumers a reasonable amount of time to make payments.
Consumers may review these proposed regulations and submit comments on the Federal Reserve web site. I encourage all readers of this blog to leave a comment supporting these new rules.
From my perspective as a bankruptcy lawyer, a primary cause of bankruptcy is unmanageable credit card debt. While these new rules – if implemented – will not stop people from getting into trouble with credit cards, I am hopeful that some of the limitations on the power of credit card issuers to change the terms of credit card accounts arbitrarily will allow honest, hardworking people more non-bankruptcy alternatives.
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