WASHINGTON (Reuters) - The U.S. Federal Reserve rejected a request to force credit card companies to immediately halt retroactive interest-rate increases on existing balances, Democratic Senator Charles Schumer said on Tuesday.
Schumer and Christopher Dodd, who chairs the Senate Banking Committee, asked the Fed last month to use its emergency powers for rescuing banks to also help credit card consumers being slapped with unexpected rate increases.
“The Federal Reserve’s failure to protect consumers from these outrageous rate increases is unconscionable,” Schumer said.
“The Fed has acted swiftly to use its emergency powers to steady teetering financial institutions. It is fair to ask why they won’t use the same powers to aid American families who are at just as great a risk.”
A Fed spokeswoman did not have an immediate comment.
In a letter to Schumer, Fed Chairman Ben Bernanke, who has called credit card practices “unfair and deceptive,” said credit card issuers have been “encouraged” to comply with the Fed’s final rules as soon as possible.
He also said shortening the implementation date of the Fed’s rules could cause issuers to overreact by cutting the availability of credit and costing consumers more to use a credit card.
“We believe that issuers must be afforded sufficient time for implementation to allow for an orderly transition process that avoids unintended consequences, compliance difficulties and potential liabilities,” Bernanke wrote in a May 4 letter.
Banks such as Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc and Capital One Financial Corp face a new set of Fed rules aimed at reining in abusive credit card practices. The rules are to be implemented by July 2010, a date some lawmakers and consumer groups complain is too far away to help struggling consumers.
Bernanke added that, while the new rules will fundamentally alter the way credit cards are underwritten and priced, consumers will benefit overall from more transparent and predictable credit card pricing.
U.S. lawmakers are trying to codify those rules in legislation. With support from President Barack Obama, the Senate could vote on a credit card measure within days if Dodd and Richard Shelby, the banking committee’s top Republican, can agree on language for a final bill.
Legislative efforts are aimed at stopping credit card companies from imposing certain late fees, restricting retroactive rate increases as well as other questionable billing practices and marketing to minors.
The House of Representatives overwhelmingly approved its own legislation last month. Lawmakers are trying to get a final bill to Obama to sign into law by the end of the month.
In 2007, Americans used an estimated 694.4 million credit cards with Visa Inc, MasterCard Inc, American Express Co and Discover Financial Services logos, according to industry data.
Reporting by John Poirier; Editing by Steve Orlofsky and Andre Grenon