Tougher rules needed on credit-card policies

Federal officials are proposing tougher rules on how credit-card companies handle their relationships with customers — steps that are long overdue.

The recommended changes were drafted by the Federal Reserve, in conjunction with the Office of Thrift Supervision and the National Credit Union Administration. They are expected to become final by the end of the year.

One of the most controversial practices to be banned: Credit card companies sometimes raise rates based on a customer’s poor payment history with another credit card issuer.

Some companies have also jacked up rates because of problems noted in a customer’s credit report. Under the new rules, a company could only penalize a cardholder for his or her payment performance on that card.

Other practices that would be banned include:

• Some card issuers average the balance over two months and use that to compute a cardholder’s rate, instead of using the balance from the most recent payment period.

• Some companies have shortened the time they allow cardholders to make payments before new interest charges are assessed. The rules require companies to allow a 21-day grace period.

• Some customers may have cards with different rates applied to different balances. Some companies apply payments only to the balances with lower rates.

The new rules say payments must go to the higher-rate balance or at least be split among balances.

Industry representatives argue that these changes would make it harder for card issuers to match rates with risks.

But they overstate the problems. Many of these gouging practices didn’t exist until recently, and credit issuers survived quite nicely.

The proposed changes might help improve the industry’s dubious public image. They seem reasonable and fair.

source : http://www.kansascity.com/340/story/636568.html