A Federal Reserve Board advisory panel Thursday disagreed on how the Fed should allow companies to set terms under changes to the credit card industry that were signed into law this year.

As the start date for President Obama's credit card reform laws approaches, consumer advocates and leaders of the credit card industry are vying to influence the final rules that the Fed must set before the changes take effect in stages, beginning in late August and continuing into 2010.

Consumer groups on the advisory panel want further cardholder protections, while industry executives argue that without flexible, broad regulations credit card companies will not be able to remain competitive once the changes take effect.

Obama signed the Credit Card Accountability Responsibility and Disclosure Act in late May. It prohibits credit card companies from increasing rates retroactively unless a payment is made late. It also requires terms to be spelled out in simple language and makes it harder to impose late fees. The new law leaves it up to the Fed to decide what constitutes a "reasonable fee."

On Thursday credit card company representatives said that because they can no longer adjust rates on existing balances, they need to be able to mitigate their losses from defaulting customers — first by setting competitive rates tied to the individual's credit score and later by imposing fees.

"This is an extraordinarily risky product and a lot of the tools to manage risk are being taken away," said Andres Navarrete, a senior vice president at Capital One Financial Corp. "I think we need to retain some tools so we can continue to lend."

But consumer advocates said credit card companies should not be able to beef up revenues by penalizing people for exceeding a credit limit or paying a balance late. Americans pay abound $15 billion in such penalty fees a year, according to the White House.

"Penalty fees should never evolve into a profit center. They are for guiding conduct," said Thomas James, senior assistant attorney general in the Illinois Attorney General Office's consumer fraud bureau.

The advisory council presented more unified recommendations to the Fed concerning the new laws surrounding foreclosure prevention. Under the Secure and Fair Enforcement for Mortgage Licensing Act, which was passed last year, many lenders must license and register all employees that help citizens take out mortgages.

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