(Updates throughout with comments from lawmakers, Fed chairman; new details.)
By Jessica Holzer Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- Bank regulators approved strict new rules to clamp down on credit-card practices Thursday, putting an end to decades of light regulation of the industry.
The new restrictions will make it tougher for banks to raise interest rates on consumers, eliminating several controversial practices that have vaulted credit-card regulation to a potent political issue.
But it did not satisfy Democrats and consumer groups, who offered praise for the new rules but said they would push to toughen them and to implement them sooner. The new regulations won't take effect until July 1, 2010.
The Federal Reserve, which adopted the rules along with the Office of Thrift Supervision and the National Credit Union Administration, also approved rules tightening disclosure for credit-card accounts and requiring lenders to disclose regularly the fees associated with overdrafts.
"The revised rules represent the most comprehensive and sweeping reforms ever adopted by the board for credit card accounts," Federal Reserve Chairman Ben S. Bernanke said.
Fed Gov. Randall S. Kroszner, who chairs the board's committee on consumer affairs, said they "represent a truly significant step forward in consumer protection."
Democrats on Capitol Hill said they would push legislation to toughen regulation of the industry next year, in part because the Fed's rules won't take effect until 2010.
Senate Banking Chairman Christopher Dodd, a Connecticut Democrat, said he applauded the Fed's move but would reintroduce legislation banning a number of practices not covered.
Rep. Carolyn Maloney of New York, the sponsor of a credit card bill that overwhelmingly passed the House this year, said she and Senator-elect Mark Udall, D-Colo., will introduce legislation to rein in credit card practices.
In a statement, Sen. Carl Levin of Michigan, the sponsor of perhaps the toughest crackdown on the industry, called the new regulations "a good first step."
The Fed relied on consumer testing to come up with the new rules on credit-card practices. It received more than 60,000 comment letters while it was drafting them, a record number for the Fed on any regulatory proposal.
The new rules will require credit-card issuers to overhaul their business models, and they will potentially crimp profits for many companies for which credit cards are a core business.
The banking industry argues that the rules will raise interest rates and reduce credit for consumers, particularly those with sketchy credit, at a time of great strain in the credit markets.
Consumer groups, meanwhile, contend that the sharp economic downturn means consumers cannot wait for relief from onerous credit-card practices. They say they will push Congress and regulators to move up the effective date for the rules.
Eighteen months is "too long to wait in a recession," said Kathleen Day, a spokeswoman for the Center for Responsible Lending.
Under the new regulations, credit-card issuers cannot raise rates during the first year unless a rate increase was disclosed to the borrower at the account opening. After the first year, issuers must give borrowers 45 days' warning before raising rates on new transactions.
A consumer must be at least 30 days delinquent on payment before an issuer can raise the rate on an existing balance. In addition, issuers must give borrowers a "reasonable" time to make a payment before they declare it late. Lenders who send statements at least 21 days before payment is due will have a safe harbor.
The new regulations also clamp down on the practice of steering payments to the lowest interest-rate balance when borrowers have balances at different rates. Banks must now either apply the payment to the balance with the highest rate, or apply it proportionately to all balances.
The regulators also banned the practice of double-cycle billing, a costly way to calculate finance charges that takes into account card balances from previous payment cycles.
Industry lobbyists hope the regulators' actions will help them fend off even tougher restrictions being floated by lawmakers on Capitol Hill. That effort hinges in large part on portraying the regulatory action as a major overhaul of the credit-card market.
In a statement, American Bankers Association Chief Executive Edward L. Yingling declared the restrictions as "unprecedented in their scope," saying that new disclosure rules would "fundamentally alter the relationship that cardholders have with their banks."
Yingling also warned that the regulations may increase costs and reduce credit for some consumers.
"With the uncertainty facing our financial system, it's absolutely vital for policymakers to understand the full impact of these regulations on consumers and the economy before judging their success or further restricting the marketplace," Yingling said.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com
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Publié le 18 Décembre 2008 Copyright © 2008 Dowjones