Fed seeks clarity on credit card fees

WASHINGTON — Confused by the fees and terms of your credit card? The Federal Reserve wants to make your monthly bill and solicitations that arrive in your mailbox easier to understand.

The Fed also wants companies to give people more than a month — 45 days — notice before making any changes to the terms of an account, including slapping on a higher penalty rate for missing payments or paying bills late.

Under current regulations, credit card companies in most cases provide 15 days notice before making certain changes to the terms of an account, the Fed said. However, under current regulations creditors need not inform a consumer in advance if the interest rate to an account increases due to default or delinquency.

The extra time would give people an opportunity to pursue their options, including switching to another credit card provider.

"The goal of the proposed revisions is to make sure that consumers get key information about credit card terms in a clear and conspicuous format and at a time when it would be most useful to them," Fed Chairman Ben Bernanke explained Wednesday.

People now often have to wade through tiny print and dense language to get information about the terms of their credit card. To help, the Fed's proposal would call for a table summarizing the changes to appear on the statement above the list of the consumers' transactions. That's where people are most likely to notice the changes, the Fed said.

From solicitations to monthly statements, the Fed's proposal would require key information appear in larger print, with rates and fees in an easier-to-see boldface. Among the changes being considered:

  • Itemizing interest charges for different types of transactions, such as purchases and cash advances, on the monthly statement and providing separate totals of fees and interest for the month and year to date. The effect of making only minimum payments would also be disclosed.
  • For solicitations and applications, the Fed is proposing that information about events that trigger penalty rates and important fees — such as late payment fees, balance transfer fees and cash advance fees — be placed in a summary table. Currently, this information may be placed outside the summary table, the Fed said.
  • With respect to account-opening disclosures, the proposal would require credit card companies to include a table summarizing the key terms of the account.

"Setting apart the most important terms in this way will better ensure that consumers are apprised of those terms," the Fed said.

The Fed's proposal comes amid complaints from consumers about confusing bills and credit card information. Legislative proposals also have been offered on Capitol Hill to address the situation.

"I salute the Fed for the improvements," said Sen. Charles Schumer, D-N.Y., who has been involved in efforts to improve credit card disclosure.

Although Sen. Carl Levin, D-Mich., welcomed the Fed's proposal, he said Congress still needs to act to crack down on what he called abusive fees and unfair practices.

"Better disclosure is critical to helping consumers, but it is no substitute for outlawing abusive credit card practices that unfairly mire American families in debt," Levin said. He has offered legislation in this area.

The changes being contemplated by the Fed largely reflect the result of extensive consumer testing done on behalf of the central bank, the Fed said.

The public, industry and other interested parties will have an opportunity to weigh in on the Fed's proposal. So it could be changed before the Fed adopts a final plan.

The banking industry said the Fed is to be commended for taking a comprehensive look at improving disclosure but expressed some concerns about the 45-day notice period and providing separate totals of fees.

"Clearly the challenge is finding a way to make disclosures simple, clear and understandable for America's consumers," said Edward Yingling, president of the American Bankers Association. "We look forward to reviewing the proposal's benefits and costs."

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