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If tight credit conditions persist during the fourth quarter, putting further pressure on consumer lending, it could affect the Federal Reserve's proposed new rules for credit card issuers, one analyst says. "If the Fed sees that it is not economically viable to push through the rules as they are proposed, they are probably not going to do it," Sanjay Sakhrani, an equity analyst with New York-based Keefe, Bruyette & Woods, tells CardLine. The Fed proposed the new rules last spring on practices many lawmakers deem unfair to consumers and said it expects to make the rules final by December (CardLine, 5/2). Credit card issuers are sharply critical of a provision that would prohibit them from raising cardholders' interest rates on existing balances unless the balance is tied to an index or variable rate, a promotional rate expires, or the minimum payment is not received within 30 days of the due date. They contend such a provision would limit their ability to price cards based on individual risk profiles and likely would diminish their total credit offers. Card issuers reiterated those concerns last week when the U.S. House of Representatives passed the Credit Cardholders' Bill of Rights, which contains a similar provision that card issuers claim would restrict their ability to lend to consumers (CardLine, 9/23). "My guess is that the language in the Fed's (final) rules will not be so specific" about the restrictions on raising consumers' interest rates on existing balances," Sakhrani says. "I suspect there will be some new rules in place by the end of the year, but there will be some room for interpretation and there will be a transition period of about a year to allow (card issuers to make) adjustments," he says.
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Terrence Belford Toronto Star Newspapers SPECIAL TO THE STAR
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