Office of Thrift Supervision Proposes New Rules on Unfair Banking Practices

WASHINGTON, May. 01 /PRNewswire/ --

Proposal Offers Important Protections for Consumers But More Safeguards Needed To Rein In Abusive Practices

WASHINGTON, May 1 /PRNewswire-USNewswire/ -- The Federal Office of Thrift Supervision (OTS) announced today that it has approved for public comment a proposed rule to prohibit savings associations from engaging in certain unfair and deceptive practices. The proposed rule offers important new protections for credit card consumers, but more safeguards are needed, according to Consumers Union, nonprofit publisher of Consumer Reports.

"It's about time federal regulators offered consumers some relief from unfair bank practices," said Consumers Union Financial Services Campaign manager Gail Hillebrand. "This proposed rule finally acknowledges that some practices just aren't fair. All the disclosure in the world can't make it fair to send the bill too close to the due date; to raise the interest rate on money already borrowed: or to charge a fee for a problem caused by the bank's practice to allow a credit hold or a debit hold."

The proposed rules respond to a sustained outcry from consumers and strong interest in Congress in credit card reform and in reform of bank account practices such as overdraft loans. Consumers Union praised the approach of the proposed rule to ban, not just require more disclosure about, some of the worst credit card practices. The OTS's summary of the rule describes these credit card reforms:

    --  No late fee if the bill was mailed to the consumer less than 21 days
        before the due date.

    --  Payments would have to be allocated among balances with different
        interest rates to give consumers the full benefit of a discounted
        promotional rate.

    --  No interest rate increases could apply to money already borrowed (with
        "certain exceptions").

    --  No charging interest on amounts already repaid, through double cycle
        billing.

    --  No more credit cards where the fees or deposits use up the majority of
        the available credit on the account.

    --  No credit card or overdraft program fees where a credit hold or a debit
        hold (in an amount greater than the actual charge or debit) was the
        cause of the credit card over limit or the bank account overdraft.

The OTS statement also makes it an unfair practice to provide an overdraft loan on a bank account unless the consumer is given an opt-out opportunity. While it is helpful that the agencies are finally recognizing the problems posed by high cost overdraft loans for bank account holders, Consumers Union believes that this form of unsought credit is unfair unless the consumer affirmatively opts-in to such a program.

"The credit card rules are real progress for consumers, but the details will be very important, and there is much more to be done by both the agencies and Congress," said Hillebrand. "It's time to end all of the abusive credit card practices that trap Americans in debt."

For example, the proposed rule addresses the most basic problem that consumers face in credit cards -- the interest rate can go up on money already borrowed. However, the OTS statement says that this protection will have "certain exceptions." Its statement suggests that one exception that would allow the interest rate to go up on the full balance is when a single payment is 30 days late. Just how valuable the new protection will be depends on how broad the exceptions are.

Similarly, it is very important that the rules finally address "fee harvester" credit cards, where much of the credit line is used up by the initial fees. However, Consumers Union and other consumer groups had asked the agencies to restrict cards that use up 10%, or 25% of the credit line in fees. The proposed rule apparently addresses only cards that use a majority of the credit line in the initial fees. Consumers Union noted that these unfair practices remain to be addressed:

    --  Restricting fees to pay a credit card by phone.

    --  Banning over limit fees if the credit card issuer approved the charge.

    --  Stopping overdraft and bounced check fees on bank accounts which are
        caused by check holds.  The proposed rule apparently addresses credit
        holds and debit holds but not check holds.  Consumers whose banks choose
        to impose long check hold times may still get stuck with overdraft and
        bounced check (NSF) fees due to this practice.

    --  Stopping bounced check fees caused by debit holds.  The rule apparently
        stops the overdraft fee when a debit hold causes an overdraft but it may
        not address the bounce (NSF) fee caused in the same way.

Consumers Union cautioned that pubic vigilance is necessary because the actual wording of the rule isn't yet public, and because a proposed rule can be changed after the comment period. The OTS has said that it will make the proposed rule public on May 2nd. Then there will be a 75 day public comment period. Final rules usually follow the comment period.