Some US credit card proposals go too far--regulator
By John Poirier
WASHINGTON, Aug 20 (Reuters) - The regulatory agency that oversees most of the U.S. credit card industry on Wednesday said it supports Federal Reserve proposals to rein in disclosure and billing practices -- but cautioned against going too far.
The Fed and other banking regulatory agencies are studying how far they should go to address complaints of unfair and deceptive practices by companies slamming consumers with unexpected fees and interest rate hikes.
The Fed's proposals are carefully being watched by lawmakers, the banking industry, consumer groups and other regulators who have weighed in on how to balance consumer protection and the credit card business.
As the U.S. economy teeters on the brink of recession, the credit-card asset-backed market is showing signs of stress as rising unemployment squeezes consumers further, forcing defaults on credit card payments.
Delinquencies on credit cards are rising, investors are demanding higher yield spreads for credit card-backed securities, and issuance is down as the sector's largest buyers retreat.
Fears that the problems in the subprime mortgage market would spread to the ABS securities market saw spreads widen in the last year or so.
Delinquencies and charge-offs, or balances written off as uncollectable, have both risen past historical norms.
In a letter to the Fed, the Office of the Comptroller of the Currency (OCC), which regulates national banks with operations comprising about 80 percent of credit card lending activities, said some proposals may lead to unintended and undesirable consequences.
The OCC disagreed with a Fed proposal to ban repricing of an existing balance after a credit card has expired because the terms can not change even if a borrower's risk profile has changed dramatically.
"We believe that such a regulatory 'freeze' of pricing terms for unsecured revolving credit ... is not consistent with safe and sound lending practices," Comptroller John Dugan said in an August 18 letter.
Dugan said proposals could force lenders to reduce the availability of credit cards and a borrower's credit limits.
He urged the Fed to allow lenders to reprice balances when a credit card is about to expire and provide a notice warning a cardholder that rates could increase when an account is renewed.
The OCC, which is part of the Treasury Department, regulates the credit card businesses of Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), and others.
Another concern is the 30-day period during which a lender has to wait before taking action for a late payment, Dugan said. He suggested the amount of time should be reduced to five days.
"Preventing a creditor from reacting to a consumer's failure to pay until the payment is 30 days late substantially undermines the ability of the creditor to adjust its pricing to reflect risk at a time when such action would be meaningful," he said.
Dugan also said lenders are concerned that labeling some credit card practices that were conducted before the rules are implemented as "unfair and deceptive" could expose banks to retroactive civil liabilities.
Other big issuers of Visa Inc (V.N) and MasterCard Inc (MA.N) credit cards include Capital One Financial Corp (COF.N) and Discover Financial Services (DFS.N).
In a first for Congress, a House of Representative committee approved last month legislation aimed at curbing some credit card practices, including double-cyle billing in which card companies reach back to prior billing cycles to help calculate the interest charged in the current cycle.
The bill, one of several introduced in Congress and not expected to become law this year, largely mirrored the Fed's proposals and also sent a message to the Fed against caving into industry efforts to water it down.
The industry has said the bill and Fed proposals could result in higher costs for consumers and reduced access to credit.
The Fed is expected to act on the proposals later this year. (Reporting by John Poirier; Editing by Jonathan Oatis)
