WASHINGTON - The Federal Reserve Board proposed stronger disclosure requirements on credit card solicitations Thursday.
Amending the Fed's Reg Z, which implements the Truth in Lending Act, the plan would dictate the type size and placement of certain information - primarily the annual interest rate and fees - in all credit card solicitations and applications.
Currently, all credit card solicitations must include a "Schumer box," which details interest rates, annual fees, and grace periods. Sen. Charles E. Schumer, D-N.Y., for whom the box is named, won the requirement as part of the Fair Credit and Charge Card Disclosure Act of 1989.
But the Fed never issued a rule specifying how the information must be presented.
For instance, while the law requires that the box be "clear and conspicuous" and "prominently located," many card issuers print it in extremely small type, and often place it on the reverse side of an application, or on a separate sheet of paper.
Sen. Schumer pressured the Fed to address the practice in a series of meetings with Chairman Alan Greenspan, Governor Edward M. Gramlich, and General Counsel J. Virgil Mattingly Jr. in February and March.
The Fed's proposed rule concedes that "changes to the current regulatory scheme appear necessary to ensure that consumers receive meaningful disclosures."
In a press release Thursday Sen. Schumer praised the Fed's proposal. Many card issuers make it very easy to spot the low introductory "teaser" rate, he said. "But even Sherlock Holmes would need a magnifying glass to find the long-term interest rate in the fine print, and that violates the spirit of the Truth in Lending Act," he said.
Industry representatives argued that new rules were not needed.
"The information is there," said Jeff Unkle, first vice president of First USA Inc. "The regulations are quite specific about what you have to disclose. We disclose all that is required, and we do it in a way that allows us to get all the information out there and in the consumer's hands."
Compliance would be expensive for issuers, which send out three billion mailings every year, he added. "It is common sense that if the type size is going to be bigger, it is going to take up more space, and take more paper to do it," Mr. Unkle said.
According to the proposal, the Schumer box must be "readily noticeable," in a "reasonably understandable form," and "prominently located."
In order to be considered readily noticeable, the annual percentage rate of interest charged on transactions must be presented in 18-point type - characters approximately a quarter-inch high. It would also have to appear under a separate heading from the annual percentage rates for other obligations, such as penalty fees.
Card issuers could meet the standard for other information by printing it in 12-point type. (For reference, this newspaper is printed in 10.5-point type.)
Issuers could meet the location test by printing the box on the same page as the application, or on a separate sheet that is specifically mentioned in the application.
This may not be the last Fed rule on credit card disclosures.
Bankruptcy reform legislation, which is being finalized by a House-Senate conference committee, would govern how card issuers present the expiration date of low "teaser" interest rates. If the legislation is adopted, the central bank would issue rules implementing that as well.
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