WASHINGTON-The Federal Reserve last week approved tough new restrictions on the rates and fees issuers can charge on credit cards, adding to the growing squeeze on credit union profitability.
Soon after, both NCUA and the Office of Thrift Supervision approved the new rules, as well.
The amendments to the Fed's Regulation Z, the Truth In Lending Act, will allow card issuers to only raise interest rates on credit cards and future purchases or advances going forward, and not on current balances, barring such practices as retroactive rate increases.
Under the new rules, credit union members will have to be given 45 days notice before any changes are made to the terms of an account, including adding on a higher penalty rate for missing payments or paying bills late. Under current rules, issuers typically give 15 days notice before making certain changes to terms.
The new rules will also restrict such practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates.
The new card rules, which take effect in July 2010, come as the Fed and the markets are pushing down interest rates, benefitting consumers but hurting credit unions and other intermediaries that must now invest deposits and offer loans at lower rates.
The credit union lobby opposed the Fed's amendments, saying CUs do not engage in the abuses the new rules are aimed at curbing.
The proposals attracted 65,000 public comments, the most ever for a Fed proposal.
