Law and regulation

Topco Financial Services Inc., an Everett, Wash.-based collection agency, settled a pending lawsuit with Washington Attorney General Rob McKenna's office by agreeing not to threaten, harass or curse at consumers. The agency will pay $5,000 in civil penalties and $33,000 in attorneys' fees and legal costs. An additional $70,000 in civil penalties and $12,000 in fees and costs was suspended provided that Topco complies with the terms of the settlement.

Lawmakers are scheduled to review a bill later this month that would set new curbs on credit cards by capping interest rates at 16% and late payments and overdraft fees at $15.

Congress continues its venomous assault on the credit card industry heedless of the consequences.

Federal regulators are expected to ratchet up the attention they pay to interest rate risk in the banking system amid mounting expectations that the prolonged period of low rates is nearing an end.

Connecticut Attorney General Richard Blumenthal is urging the Federal Reserve Board to return credit card interest rates and fees to year-ago levels after banks raised them in response to new federal rules and surging credit costs, reports Dow Jones.

Connecticut Attorney General Richard Blumenthal is urging the Federal Reserve Board to return credit card interest rates and fees to year-ago levels after banks raised them in response to new federal rules and surging credit costs, reports Dow Jones.

The South Korean government has changed the rules governing tax deductions for credit card spending, a spokesperson for the Korean National Tax Service tells PaymentsSource. To promote the use of payment cards, the government previously offered a 20% tax deduction to citizens who used credit cards to spend at least 20% of their annual incomes. The government has raised the spending threshold to 25% while offering the same tax deduction, the spokesperson says. The government also reduced the maximum tax deduction a citizen can receive to 3 million won (US$2,600 or 1,800 euros) from 5 million won. The Korean tax authority made these changes because it has achieved its goal of promoting the use of payment cards for retail purchases, according to an official from the Credit Finance Association of Korea, a trade group. “Now they have more room for pulling back these deductions,” a spokesperson for the association tells PaymentsSource.

Issuers in Malaysia can enter into alternative arrangements with their cardholders for the payment of the credit card service tax that goes into effect on Jan. 1, a spokesperson from the Association of Banks in Malaysia, a trade group, tells PaymentsSource. Banks may enable cardholders to pay taxes via rewards points and cash-back rebates, the spokesperson says. Banks earlier had said they intended to charge customers for the tax instead of absorbing the costs. Earlier this year, the Malaysian government announced that a service tax of 50 ringgits (US$15 and 10 Euros) a year would be imposed on each primary credit card and 25 ringgits a year on each supplementary card. The association spokesperson says that debit cards, gasoline cards and private-label cards are not subject to the tax. “The tax would be collected by banks and other card issuers from credit or charge card holders and paid to the customs and excise director-general,” the spokesperson says.

Royal Bank of Scotland early next year will begin charging cardholders in the United Arab Emirates a monthly maintenance fee on its credit cards. In a statement sent to cardholders in the U.A.E., the bank blames market conditions for the establishment of the fee. The bank says it will charge a monthly fee of 10 dirhams (US$3 or 2 euros) beginning on 1 Feb. A spokesperson for Dubai Bank tells PaymentsSource that their cards already carry similar fees. A spokesperson for U.A.E.-based RakBank says the financial institution has no plans to introduce such fees.

While securitization of residential mortgages that lack government backing remains moribund, credit card and other consumer lenders have issued about the same amount of asset-backed bonds this year as they did in 2008 thanks to a federal rescue.

The Bank of Israel has ordered Israel Credit Cards-Cal Ltd. to compensate customers who failed to receive proper information about relatively high interest rates and monthly repayments for credit cards, the country’s central bank says in a statement. The ruling applies primarily to customers who canceled or stopped using “Active” cards within six months of first use. Central bank officials say they issued the order after receiving complaints from the issuer’s customers. The issuer did not provide immediate comment. Active cards carry an average annual interest rate of 14.4%, the central bank says. Other cards typically carry lower rates, the bank says. Customers who failed to contact the issuer to negotiate card-repayment details were “subject to a minimum repayment determined by the company, and the remainder [would] be carried into the coming months at a high interest rate,” the central bank says in a statement. “Furthermore, the rate of interest charged on the credit cards was only brought to the attention of the customers at a later stage and only after they used the card for the first time.” According to the bank, the card company informed its customers about the interest rate only at the time of their first monthly statement and not before they used their cards. The central bank did not say how much customers will be compensated. The issuer must publish more information about interest rates, the amount of monthly repayments and dates of monthly payments, the central bank says.

An estimated 341 different collection agencies and creditors were named in 503 consumer statute lawsuits filed between Dec. 1 and 15, according to data from U.S. District Court complaint dockets compiled by WebRecon LLC, a Grand Rapids, Mich.-based research firm.

Philippines officials expect soon to release a set of implementing rules for the use of alternative electronic devices, such as mobile phones, to pay taxes and to conduct other government transactions, according to an official at the country’s Department of Trade and Industry. The rules would alleviate the need to go to a bank to make such payments. The official, who requested anonymity, says the department is finalizing the guidelines. Under the draft proposal, government agencies that have an e-payment facility could charge clients a fixed fee when using a mobile phone or other alternative-payment channel. “Once established, these rules will guide government agencies on how to accept payments from credit cards, cash cards and mobile wallets …,” the official adds. According to the official, work on these rules began in earnest in October 2008, and the department expects to finish the task in January. “A public hearing was held last week in this regard to take feedback from industry participants,” he says. “The completed set of rules, if passed, will be then issued as an administrative order by the [Department of Trade and Industry] and the Department of Finance.” The rules would take effect during the first quarter. Philippines government agencies already are supporting online transactions, though the final payments are made offline, according to a local news report.

Banks in Sri Lanka will reduce their credit card interest rates, an official from the 15-member Payment Card Industry Association of Sri Lanka says. “This decision has been taken after the Central Bank of Sri Lanka expressed concern last week that card issuers were not bringing down rates even though there was some margin available,” he says. According to the official, interest rates on credit cards have remained between 33% and 48% since December 2008. “The central bank asked for banks to lower rates to between 24% and 36%,” he adds. “Banks will follow this suggestion and bring down rates to a minimum of 24% to maximum of 36% beginning this January.” Sri Lankan banks issue some 1 million credit cards.

Bank Islam Malaysia Bhd will not absorb the planned service tax on credit cards that the government will impose next year, the Kuala Lumpur-based bank announced this week. In a statement, the bank said it already has offered other incentives for its credit card customers and does not see the need to absorb the tax. The Malaysian government announced in its 2010 budget it will impose a 50 ringgits (US$15 or 10 Euros) tax on primary credit cards and a 25 ringgits tax on supplementary credit cards. Previously, one other bank, Malayan Banking Bhd, had announced that it, too, will not absorb this tax. That announcement came during the same week the government announced that new credit and charge card holders next year will have to pay the service tax up front. However, existing cardholders will have to pay the tax on the anniversary date of when they received their cards. A survey from local business daily StarBiza also found that such banks as Citibank and RHB Bank were against absorbing the tax. The survey also found that banks are willing to waive annual fees or allow cardholders to use their reward points to pay for the tax.

Debt buyer Portfolio Recovery Associates (PRA) is the defendant in a class-action lawsuit filed by Atlanta-based law firm Webb, Klase & Lemond LLC. The case alleges that Norfolk, Va.-based PRA improperly subjected consumers to arbitration with National Arbitration Forum Inc. (NAF), a service it knew was biased in favor of creditors.

If the checking account's loss has been the prepaid card's gain, new overdraft regulations could kick that trend into overdrive.

Financial regulators in China plan to crack down on credit card-related crimes, the People’s Bank of China, the country’s central bank, announced Tuesday on its Web site. The central bank plans to work with associated agencies to remove print and Web advertisements authorities judge offer false information about credit cards. The bank did not offer more details. People’s Bank also plans to work over the next year with the Ministry of Public Safety to fight card fraud, and it plans to increase efforts to educate consumers about how to use cards. People’s Bank announced its plans after China's Supreme People's Court and the Supreme People's Procuratorate, a prosecutorial and investigative agency, announced a judicial interpretation this week that clarifies several laws concerning credit card fraud. Under a legal document scheduled to go into force Wednesday, card fraudsters could face at least 10 years in prison or even life imprisonment and fines of up to 500,000 yuan (US$73,200 or 50,500 euros) in cases that involve more than 25 counterfeit credit cards. China also could press charges against cardholders who intentionally delay credit card repayments for at least three months after an issuer sends a second notice.

Some 75% of U.S. households said they are familiar with new credit card industry regulations President Obama signed into law earlier this year, but they are divided on the new rules’ effect, suggest the results of a recent survey from Maritz Inc.’s Maritz Research subsidiary. The firm surveyed 2,666 U.S. adults online Oct. 8 to 14 to measure awareness of the Credit Card Accountability, Responsibility and Disclosure Act, which will restrict many credit card industry practices when it goes into full effect Feb. 22. Asked to weigh the “expected impact” of the regulations, 50% said they expected to feel no impact, while 17% said they expected a negative impact and another 17% expected a positive impact. Some 6% foresaw “significant positive impact” while 4% expected a “significant negative impact.” Six percent were unsure of the new rules’ effect. Some 42% of respondents reported seeing recent interest-rate increases on their cards, while 29% reported the recent notification of higher minimum payments, 28% reported recent credit-line reductions, 22% reported the recent imposition of new or higher annual fees, and another 22% reported recent rewards-benefit reductions. Some 40% of respondents said they tended to pay their credit card bill in full each month, while 60% tended to carry a balance. “I was surprised that consumers’ familiarity with the new regulations was so high, given the fact that many credit card issuers are still contemplating changes they will make in response to the law,” Rich Brose, senior director of strategic consulting for Maritz’s financial services group, tells CardLine. “It’s too soon to tell what consumers will ultimately decide, but the early returns show contrasting viewpoints on its effect.” Among other provisions, the law requires issuers to give cardholders 60 days’ warning of any interest-rate changes and prevents issuers from raising cardholders’ interest rates on existing balances, except in certain conditions.

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