Fed Looking to Tighten Credit Card Regulations… Sound Familiar?

In order to block practices that banks have used to circumvent new credit card laws, the Federal Reserve recently announced plans to amend the credit card regulations it established back in May of 2009. The Wallstreet Journal sites two examples of banks, Citibank and First Premier Bank, that have creatively skirted the regulations.

Citibank recently launched a new promotional program that raised some customers’ interest rates as high as 29.9%. The bank then turned around and “offered a rebate on up to 70% of finance charges if they were paid on time.” In some cases, the rebate brought the borrower’s interest costs to the same cost it would have been prior to the rate increase. Further, the bank’s policy on the promotional program allowed it to revoke rebates at any time. In doing so, the bank was technically breeching rules that disallowed banks from raising rates on existing balances and the 45-day notice for changing terms. The amendments the Fed looks to impose will prohibit this type of promotional program. The fed stated that, "Promotional programs that waive interest charges for a specified period of time are subject to the same protections as promotional programs that apply a reduced rate for a specified period."

First Premier Bank also tried to circumvent new credit card regulations by offering a card with a $300 limit, $75 annual fee, and a $95 processing fee to be paid before the card is activated. Technically, the bank is in violation of the fed’s law that limits fees to no more than 25% of the card’s credit line in the first year. The bank claimed that “the 25% limit only applied to fees charged after an account was opened.” The fed’s amendment will clearly indicate that the 25% restriction also encompasses fees that the consumer is required to pay before the credit card is used.

I think that these are two of many practices that the fed will call into question when it reevaluates its credit laws. Hopefully, the amendments made will give consumers a break and disallow banks from instituting high fees to make up for lost profits.

WSJ article: http://online.wsj.com/article/SB10001424052702304510704575562140663625322-search.html?KEYWORDS=credit+card&COLLECTION=wsjie/6month