Regulators Approve New Credit Card Rules

Federal regulators today approved a rule prohibiting banks and other issuers from engaging in unfair credit card practices.

The Office of Thrift Supervision (OTS), approved the rule early in the morning, and the Federal Reserve Board (FRB) and the National Credit Union Administration (NCUA) were expected to add their approval by the end of the day, providing consumers with uniform restrictions on credit card interest rate increases, late payment fees and other practices of card issuers that were deemed unfair.

“Credit card issuers are already facing a considerable challenge in the current economy: less people are signing up for credit cards and less interchange is being funneled back to issuers as consumers use their credit cards less,” said Aite Group analyst Adil Moussa. “This will diminish issuers’ receivables over the next few years.”

Moussa said that he sees chargeoffs and bad debt increasing, but more due to the current economic environment than from the impact of the new rules.

Moussa added that he expects issuers to now have an increasing focus on retention strategies, particularly rewards programs.

The OTS said it began the interagency effort to reform credit card practices in August 2007 by issuing an Advance Notice of Proposed Rulemaking to seek comments on a broad array of practices related to the marketing, originating and servicing of credit cards and other products.  Many comments responding to the notice urged a uniform approach across the federally regulated financial services industry.

The FRB and NCUA joined the OTS for the next step in the federal rulemaking process and in May 2008, the agencies issued a Notice of Proposed Rulemaking that generated 66,000 comments and led to today’s final rule (“Regulators Propose Credit Card Rule Changes,” May 2).

The OTS version of the rule will apply to savings associations, the FRB rule will apply to banks and the NCUA rule will apply to federal credit unions.