No Shortage Of Comment On Proposed Credit Card Disclosure Rules

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The Federal Reserve has received more than 1,800 comment letters, most from consumers, on its plan to overhaul credit card disclosures. Among the Fed's proposals is new formatting for such disclosures and a requirement that a credit card issuers provide cardholders with 45 days' notice before a penalty rate hike.

Banks and credit card companies were in near agreement in calling on the Fed to scrap the use of the "effective" annual percentage rate in which the interest rate is adjusted to reflect fees and other costs.

Many also said the proposal will only lead to higher costs for borrowers.

"Restricting the ability to change terms on a timely basis may force some issuers to establish account terms at the outset with an increased margin to compensate for the potential of increased risk in the future that cannot be managed swiftly," wrote Christina Favilla, president of Discover Bank.

Andrew T. Semmelman, a senior vice president at JPMorgan Chase & Co.'s main national bank subsidiary, wrote that 45 days would be an excessive amount of time for consumers to seek other card plans. "Consumers do not need such a long period to seek alternative financing, as evidenced by the myriad of offers that consumers receive from creditors promoting their products."

But not all the comment letters agreed with Semmelman. John G. Finneran Jr., general counsel of Capital One Financial Corp., wrote that it supports the 45-day change-in-terms notice, and that the Fed should go even further by letting borrowers opt out of a penalty rate, as long as they pay down their debt.

Finneran added that an opt-out provision should be available for any penalty increase, even one resulting from a missed payment on the card account.

"We think that right should apply to all forms of repricing, ... regardless of whether the grounds for repricing are characterized as 'universal default," he wrote.

Citigroup Inc. said it concurred with Comptroller of the Currency John Dugan's "focus on penalty APR increases due to off-us defaults as a fundamental source of consumer misunderstanding and complaint," according to a letter from Carl V. Howard, the company's bank regulatory general counsel.

But Gregory A. Baer, a deputy general counsel for Bank of America Corp., wrote that an opt-out requirement was unnecessary. "Most state laws, including those states where credit card issuing banks are located, ...already provide for this," he wrote. "Therefore, there is little need to dramatically change the proposal to add a further substantive provision to what is a disclosure-focused regulation."

Financial institutions across the board also urged the Fed to drop the requirement to disclose the "effective APR." The Fed had asked commenters to weigh in on whether it should be eliminated altogether or modified to make it less confusing for customers.

"We believe the so inherently flawed as it relates to a credit card account that it cannot be improved satisfactorily, and therefore card issuers should not be required to provide such a disclosure," wrote Jodi Golinsky, a regulatory and public policy counsel for MasterCard Worldwide. (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.

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