Credit Cards

Regulator plans rules to curb credit card

The U.S. Office of Thrift Supervision is crafting rules to protect consumers from abusive credit card practices such as retroactive rate increases, the agency's deputy director told lawmakers on Thursday.

Credit card companies such as Visa Inc and MasterCard Inc have been criticized by consumer groups and lawmakers for their billing practices. In February, U.S. House of Representatives Democrats introduced a bill to stop arbitrary interest rate increases, penalties for consumers who pay only a portion of their balances on time, and excessive fees charged by credit cards.

In prepared testimony, OTS Deputy Director John Bowman said his agency plans to propose new regulations restricting retroactive rate increases and other practices that have raised concern. Bowman was scheduled to testify at a House Financial Services subcommittee hearing on legislation that would create a credit card holder's bill of rights.

Banks that offer credit cards, such as Bank of America Corp and Capital One Financial Corp, oppose the legislation. They have warned it could raise fees and reduce the amount of credit available to consumers.

Bowman said his agency shared many of the lawmakers' concerns, including the practice of increasing the annual percentage rate on an outstanding balance for reasons other than cardholder behavior directly related to the account.

"In our... proposal we expect to place restrictions on some of these types of practices," he said.

Bowman called the practice of computing finance charges based on account balances in billing cycles preceding the most recent billing cycle "troubling." For example, if a consumer makes a payment on a portion of his bill, the credit card company may still charge interest on the full amount, even though part has been repaid.

"It is very difficult for consumers to avoid the increased costs associated with double-cycle billing because most consumers simply can't understand it," Bowman said. "This is another area that we address in our proposal."

The OTS supervises credit card activities of thrift institutions.

The agency is at the beginning stage of crafting rules and will soon issue a notice of proposed rulemaking, Bowman said. After a proposal is issued, the OTS will review public comments before finalizing new regulations.

The OTS will ask the Federal Reserve Board, Federal Trade Commission and National Credit Union Administration to participate in the rulemaking, he said.

Also scheduled to testify at the House panel hearing were officials from the Federal Deposit Insurance Corp, the Comptroller of the Currency, the Fed, and executives from Citigroup and Discover.

(Published by The New York Times 18, 2008)