Feds adopt new credit card rules

WASHINGTON — Federal regulators on Thursday adopted sweeping new rules for the credit card industry that will shield consumers from increases in interest rates on existing account balances among other changes.

The rules, which take effect in July 2010, will allow credit card companies to raise interest rates only on new credit cards and future purchases or advances, rather than on current balances.

Amid the economic crisis and rising job losses, consumers — even those with strong credit records — have been defaulting at high levels on their credit cards. Banks already battered by the mortgage and credit crises have been bleeding tens of billions in red ink from the losses.

The rules were approved by the Federal Reserve, the Treasury Department’s Office of Thrift Supervision and the National Credit Union Administration. The changes mark the most sweeping clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitrary hikes in interest rates or inadequate time provided to pay the bills.

Public comment

Most of the rules were first proposed in May and drew more than 65,000 public comments — the highest number ever received by the Fed. They also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates.

But the changes also could make it more difficult for millions of people with bad credit to get what is known as a subprime card carrying higher interest rates, some experts say.

In addition, consumers will have to be given 45 days notice before any changes are made to the terms of an account, including slapping on a higher penalty rate for missing payments or paying bills late. Under current rules, companies in most cases give 15 days notice before making certain changes to the terms of an account.

The changes could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.

The new rules prohibit:

-- Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.

-- Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account.

-- Unfairly computing balances in a computing tactic known as double-cycle billing.

-- Unfairly adding security deposits and fees for issuing credit or making it available.

-- Making deceptive offers of credit.

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