The Finch Formerly Known As Gold

25 May 2007

This is not the Z Visa you're looking for

The Federal Reserve Board has proposed changes to Regulation Z, the current version of the Truth-in-Lending Act, which will raise the bar for credit-card disclosures. Says the Fed:

Disclosures accompanying credit card applications and solicitations would highlight fees and the reasons penalty rates might be applied, such as for paying late. Creditors would be required to summarize key terms at account opening and when terms are changed. Periodic statements would break out costs for interest and fees. Two alternatives are proposed regarding the "effective" or "historical" annual percentage rate disclosed on periodic statements. The proposal would also expand the circumstances under which consumers receive written notice of changes in the terms applicable to their accounts, including requiring an advance notice before a penalty is required, and increase the amount of time these notices must be sent before the change becomes effective.

I can certainly applaud these measures, and apparently so can the banking industry:

"We strongly agree that improved disclosures empower consumers to make better choices in our competitive marketplace," said Edward Yingling, head of the American Bankers Association, a lobbying group that represents the biggest credit-card issuers.

Since it's unlikely that this accord developed as a result of Fed Chairman Ben Bernanke's irresistible charisma, the temptation is irresistible to sniff around for another reason, and Carey Greenberg-Berger of Consumerist seems to have picked up a scent:

The creditors will gladly accept the Fed's proposal if it will help them brand legislation introduced by Senator Carl Levin (D-MI) as unnecessary.

And what is Levin calling for? Stuff like this:

[I]f the creditor increases the periodic interest rate applicable to an extension of credit under the account, such increased rate shall apply only to extensions of credit made on and after the date of such increase under the account, and any extension of credit under such account made before the date of such increase shall continue to incur interest at the rate that was in effect on the date prior to the date of the increase.

If you were paying 16 percent on your balance and they jack it up to 21 percent, the jacking would be limited to new charges: you would still pay the 16 percent on the old stuff. Of course, they apply payments first to lower-interest balances, and if anything is left it's applied to higher-interest balances. But Levin addresses that too:

Upon receipt of a payment from a cardholder, the card issuer shall —
  1. apply the payment first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted; and
  2. after complying with paragraph (1), apply the payment in the most effective way to minimize the imposition of any finance charge to the account.

And there's more. No wonder the banks are flocking to embrace the new Regulation Z: they're hoping that the general public will accept the new Fed rules as sufficient regulation and will show no interest in Levin's bill.

All the more reason to mention it here, I think.

Posted at 8:22 AM to Common Cents

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