Bernanke References Credit Card Reform in House Testimony

During his semiannual monetary report to Congress, Federal Reserve Chairman Ben Bernanke said his group has already received more than 20,000 comment letters in response to the proposed rules to limit credit card issuers’ ability to raise interest rates and require better consumer information on credit card practices.

The comment period closes at the end of this month.

In May, the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration issued the proposed rules that would, under the Federal Trade Commission Act, attempt to address unfair or deceptive practices for credit card accounts and overdraft protection plans ("Regulators Propose Credit Card Rule Changes," May 2). 

Bernanke discussed some of those proposed rules in his testimony: “Credit cards provide a convenient source of credit for many consumers, but the terms of credit card loans have become more complex, which has reduced transparency.  Our consumer testing has persuaded us that disclosures alone cannot solve this problem.

“The proposed rules would require card issuers to alter their practices in ways that will allow consumers to better understand how their own decisions and actions will affect their costs.  Card issuers would be prohibited from increasing interest rates retroactively to cover prior purchases except under very limited circumstances.  For accounts having multiple interest rates, when consumers seek to pay down their balance by paying more than the minimum, card issuers would be prohibited from maximizing interest charges by applying excess payments to the lowest rate balance first.”

Congresswoman Carolyn B. Maloney (D-NY), author of The Credit Cardholders’ Bill of Rights, applauded Bernanke’s remarks on the proposed new card rules.

“Improving disclosure is not enough, and that solid industry-wide reform is overdue,” Maloney said in prepared remarks. “Balanced reforms, like those in my bill, would help consumers responsibly manage their spending and debt, and help bolster our struggling economy.”     

But the proposed rule changes may not be enough, Maloney cautioned in her prepared remarks: “I continue to maintain that legislation is the only lasting solution to this problem.  Regulation can be slow to implement, and it isn’t backed by the force of law.”