Our view on consumer protection: Feds take overdue first step to curb credit card abuses
2 hours, 47 minutes ago
For years, neither regulators nor lawmakers have taken much notice as consumers cried for help against unfair credit practices. Card issuers were left free to jack up rates and already record-high fees and penalties, both on good customers and those struggling to pay off their debt. At long last, however, federal regulators are proposing rules to rein in some of the card issuers’ most egregious practices. The rules would “establish a new baseline for fairness,” Federal Reserve Chairman Ben Bernanke said on Friday.
That’s as welcome as it is belated. But before consumers celebrate, they should know that there can be a big difference between proposed reforms and the final product. Regulators often move glacially. Strict proposals tend to get watered down. And the well-financed banking lobby appears ready to do all it can to derail these reforms, which were tougher than bankers had anticipated.
The proposed rules would, for example:
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* Ban issuers from raising interest rates on existing balances, except in a few circumstances that are clearly communicated to consumers, such as when a teaser rate expires or a consumer is more than 30 days late. The ability to raise rates “at any time and for any reason” has been one of the most detrimental and unfair to consumers.
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* Bar issuers from applying all payments exclusively to the balance with the lowest rate, such as a teaser rate, while letting balances with higher rates continue to grow. That assures higher profits for lenders and tends to undo any consumer benefit that the promotional rate offers.
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* Prevent issuers who target consumers with poor credit histories from charging fees so excessive they amount to more than half the credit being offered.
These changes seem so obvious that the question becomes: Why didn’t they happen a long time ago?
One major obstacle is the regulators’ own tendency to debate and delay. In 2004, for example, the Federal Reserve proposed revamping the dense language issuers use in their disclosures. Before taking action, regulators did consumer testing. In 2006, a government report confirmed what just about everybody already knew: The fine-print disclosures are too complicated. So did regulators act then? No. Nearly two years later, consumers are still waiting for disclosures in plain English.
In the meantime, Bernanke concluded that the “improved disclosures alone cannot solve all of the problems consumers face.” The Fed now promises action by year’s end.
The biggest obstacle by far is opposition by the lobbyists for banks, led by the American Bankers Association, and other card issuers. In Congress, their clout is legendary, bolstered by huge campaign contributions to lawmakers. And while card issuers can’t donate to regulators, they’ve generally been successful at watering down or delaying proposals they find bothersome.
With some issuers engaging in so many egregious practices, it will take new rules and new laws, such as those proposed by several congressional Democrats, to curb abuses. Consumers will need to be watchful and wary to ensure that the well-intentioned regulations and laws don’t go the way of failed proposals in the past. We’ll also be watching to see who stands up for fairness, and naming the names of those who don’t.
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