The Federal Reserve has now joined other U.S. banking regulators in supporting new limits on nefarious billing practices by credit card companies.
The Fed has approved a proposal that would generally prohibit credit card issuers from increasing the annual percentage rate (APR) on a card holder’s outstanding balance. It would also prevent companies from going back to prior billing cycles when calculating the amount of interest charges on the current cycle, a practice known in the industry as double-cycle billing.
The U.S. Office of Thrift Supervision along with the National Credit Union Administration have already approved the proposal. All three regulators said that they hope to put the finishing touches on the rule by the end of this year.
In the U.S., the biggest issuers of Visa and MasterCard credit cards are Bank of America, JPMorgan Chase, Citigroup, Capital One, and Discover Financial Services.
“The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” Federal Reserve Chairman Ben Bernanke said at a meeting to approve the proposal. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”
The banking industry has fought bills before, both in the Senate and the House of Representatives that aim to limit similar practices.
The new plan would also prohibit banks, and credit unions from charging a fee for paying an overdraft on a checking account, debit card purchase or ATM withdrawal unless they give consumers the ability to opt out of overdraft payments.
The proposal will also take steps to stop the practice of raising interest rates on a balance when a cardholder fails to make payments on a totally unrelated bill. Democrats in Congress have said the proposals appear to tackle some practices, but more can be done but they are still an improvement from the current practices.
In recent months, a number of U.S. politicians have criticized credit card billing and marketing policies that they say surprise unsuspecting cardholders who then become trapped in a cycle of exorbitant fees.