Maybe it’s confusion, or maybe it’s a deliberate run around the rules, but for one reason or another some credit card issuers have been charging customers in ways that defy the spirit of the card law Congress enacted in 2009. Now the Federal Reserve is stepping in to stop them.
To curb retroactive interest-rate increases and “fee harvesting,” on Oct. 19 the Fed proposed amendments to the Truth in Lending rules.
“The proposal is intended to enhance protections for consumers and to resolve areas of uncertainty so that card issuers fully understand their compliance obligations,” the Fed said, refraining from accusing issuers of deliberately violating the 2009 rules. The proposed rules are likely to take effect after a 60-day comment period.
The 2009 card reforms included rules barring issuers from raising interest rates on existing card balances unless a customer’s payments were more than 60 days overdue. While banning retroactive rate hikes, the law permitted rate increases in balances built up after the new rate was announced. The law also entitled customers to 45 days notice before significant changes in card terms, such as rate hikes.
Critics say some issuers have raised rates and at the same time offered large rebates for on-time payments, while also reserving the right to revoke the rebates at any time. This allowed them to get around the rules barring rate hikes on existing balances and the 45-day warning period.
Customers could build up balances expecting to pay the low rate created by the rebate but end up paying the higher, pre-rebate rate, even if they’d made all their payments on time.
In its Oct. 19 announcement the Fed said: “Promotional programs that waive interest charges for a specified period of time are subject to the same protections as promotional programs that apply a reduced rate for a specified period.