Fed Proposes New Rules on "Deceptive" Credit Card Practices

Statement by Chairman Ben S. Bernanke May 2, 2008 We are meeting today to discuss proposed regulations for banks under the Federal Trade Commission Act.

These rules are intended to protect consumers from unfair or deceptive practices, and would address credit card accounts as well as banks’ overdraft protection plans on checking accounts.

Twenty-five years ago, less than half of all American families had a general purpose credit card. Since then, the number of consumers holding such cards and the amount of outstanding credit card debt has grown significantly. The development of credit scoring and implementation of risk-based pricing have made credit cards available to more people. In addition to serving as a source of needed credit, consumers benefit from the convenience credit cards offer as a payment mechanism.

Although they work well for many consumers, credit card plans have become more complex. The greater complexity has reduced transparency in credit card pricing and increased the risk that consumers will not understand key terms that affect the cost of using the account. The Federal Reserve has used consumer testing to make great strides in developing improved disclosures under the Truth in Lending Act. However, based on our review of consumers' response to the Board's recent regulatory initiative, it seems clear that improved disclosures alone cannot solve all of the problems consumers face in trying to manage their credit card accounts.

The Board is responding to these concerns with proposed rules that are intended to establish a new baseline for fairness in how credit card plans operate. Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs. At present, this is not always the case. For example, creditors now can reserve the right to increase interest rates at any time and for any reason and apply the new rate to purchases the consumer has already made. Likewise, when consumers accept low-rate promotional offers, they do not expect card issuers to allocate their payments to minimize the benefits of the offer and maximize interest charges

The proposed rules dealing with banks' payment of overdrafts address a similar concern about consumers' ability to manage their checking accounts. Checking accounts have become more complex and offer consumers the convenience of being able to access their funds in a variety of ways. These different payment channels and the possibility of transaction fees can make it difficult for consumers to know the precise amount of funds available at any given time. Historically, banks paid occasional overdrafts on an ad hoc basis, but today overdrafts are often paid routinely using automated programs. While some consumers prefer to have most of their transactions honored or approved, overdraft services can be expensive and other consumers may prefer not to exceed their account balance. The proposal seeks to give consumers greater control, by ensuring they have ample opportunity to opt out of overdrafts.

I will now turn it over to Governor Randall Kroszner, who chairs the Board's Committee on Consumer and Community Affairs, to discuss the proposals in greater detail.

Press Release Federal Reserve Press Release

Release Date: May 2, 2008 For immediate release

The Federal Reserve Board on Friday proposed rules to prohibit unfair practices regarding credit cards and overdraft services that would, among other provisions, protect consumers from unexpected increases in the rate charged on pre-existing credit card balances.

The rules, proposed for public comment under the Federal Trade Commission Act (FTC Act), also would forbid banks from imposing interest charges using the "two-cycle" billing method, would require that consumers receive a reasonable amount of time to make their credit card payments, and would prohibit the use of payment allocation methods that unfairly maximize interest charges. They also include protections for consumers that use overdraft services offered by their bank.

"The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate," said Federal Reserve Chairman Ben S. Bernanke. "Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs."

The proposed changes to the Board’s Regulation AA (Unfair or Deceptive Acts or Practices) would be complemented by separate proposals that the Board is issuing under the Truth in Lending Act (Regulation Z) and the Truth in Savings Act (Regulation DD).

The provisions addressing credit card practices are part of the Board’s ongoing effort to enhance protections for consumers who use credit cards, and follow the Board's 2007 proposal to improve the credit card disclosures under the Truth in Lending Act. The FTC Act proposal includes five key protections for consumers that use credit cards:

* Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.

* Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.

* Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.

* Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.

* Banks would be required to provide consumers a reasonable amount of time to make payments.

The proposal would also address subprime credit cards by limiting the fees that reduce the available credit. In addition, banks that make firm offers of credit advertising multiple rates or credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.

"Unfair practices can impose significant costs on credit card users," said Federal Reserve Board Governor Randall S. Kroszner. "The new proposed rules would provide the benefit of substantial protection against practices that can harm consumers."

The Board's proposal under the FTC Act also addresses acts or practices in connection with a bank’s payment of overdrafts on a deposit account, whether the overdraft is created by check, a withdrawal at an automated teller machine, a debit card purchase, or other transactions. The proposal requires institutions to provide consumers with notice and an opportunity to opt out of the payment of overdrafts, before any overdraft fees or charges may be imposed on consumers' accounts.

To ensure that consumers enjoy the same protections regardless of the institution from which they obtain a credit card or receive overdraft protection, the Board's FTC Act proposal is issued concurrently with substantively similar proposals by the Office of Thrift Supervision and the National Credit Union Administration that would apply, respectively, to savings associations and federally-chartered credit unions.

All three Federal Register notices are attached. In light of the significance of the issues raised, the comment period for the FTC Act proposal ends seventy-five days after publication of the proposal in the Federal Register, while the comment periods for the Regulation Z and DD proposals end sixty days after publication. Publication of each of the proposals is expected shortly.

Technorati Tags: Fed. Chairman Ben Bernanke and credit cards or Federal Reserve Board

President Welcomes Super Bowl New York Giants VIDEO PODCAST

Bush and Vice President Dick Cheney pose for a photo with the Super Bowl XLII Champion New York Giants, Wednesday, April 30, 2008, on the South Lawn of the White House. White House photo by David Bohrer

President Bush Welcomes Super Bowl XLII Champion New York Giants to White House FULL STREAMING VIDEO South Lawn 3:14 P.M. EDT PODCAST OF THIS ARTICLE THE PRESIDENT: Welcome. It's my honor. Thank you for coming. Please be seated. Welcome to the White House. It's an honor to recognize the Super Bowl Champs, the New York Football Giants. (Applause.)

I appreciate you all coming. Mr. Vice President, thank you for joining me up here as we welcome the Giants to the South Lawn. I want to thank John Mara and his mom, Ann, who's joined us; Steve Tisch and his mother, Joan; of course, their head football coach, Tom Coughlin, and his wife, Judy. (Applause.) He got the extension, that's a good thing. (Laughter.) Makes it a little easier to be standing up here. (Laughter.)

I appreciate all the players who have joined us today, and the coaches and the personnel that make the club function. I thank members of my administration who have joined us. I welcome members of the Congress, Senate, particularly from New Jersey and New York -- (applause) -- state elected officials from New Jersey and New York, it's a good thing to be here.

I welcome those from Walter Reed who have joined us today. (Applause.) And of course, welcome to all the Giants fans. (Applause.) Behave yourself. (Laughter.)

First, it's good to be up here with the Super Bowl MVP, Eli Manning. We have a few things in common. (Applause.) We got some things in common. Eli has a father and a brother in the same business he's in. (Laughter.) Sometimes the press are skeptical. (Laughter.) And he just survived a big wedding. So I asked him coming in, any advice? He said, I wasn't father of the bride. (Laughter.)

New York Giants have one of the great storied histories in pro football. And this club carried on that great tradition. And perhaps -- many would say this is probably the most exciting chapter ever written in the New York Giants' football history. After all, you started off the season and allowed 80 points in the first two games. That would be called a lousy start. (Laughter.) And then you're playing the Redskins -- it's okay, you know. (Laughter.) And the game wasn't going very well, as I recall. And then you rallied, and you won.

A lot of the people that know something about football said that was the turning point. And the winning streak was interesting -- six straight games, as I understand, on two different continents. You also had a great road record. I don't know if the fans understand this, but you piled up more away-game victories than -- in NFL history. (Applause.) And the good news is, your fans still loved you at home. (Laughter.) They really loved you.

You got into the -- you secured a wild card. And it was interesting, in the last game of the season, a lot of folks thought the Coach would just kind of lay down and let New England cruise to a perfect season. (Laughter.) I remember a lot of people speculating about that last game of the season -- and yet you didn't, Coach. Your team didn't win on the scoreboard, but you won the hearts of a lot of Americans for contesting the game. And you also, your team -- (Applause.)

And it clearly gave your team some self-confidence, because you stormed through Tampa Bay and then went into Dallas -- I'm a good sport. (Laughter.) We're going to send Jessica Simpson to the Democrat National Convention. (Laughter.)

Packers was one of the coldest games in NFL history. You lit up the field like you were on fire. (Applause.) And Lawrence Tynes, who's with us here, came through with a 47-yard field goal in overtime, putting you in Super Bowl XLII. (Applause.) You know, I knew you were going to make it. (Laughter.) I don't know if everybody else did, but I knew you were going to make it. And you knew you were going to make it.

MR. TYNES: I did.

THE PRESIDENT: And all of a sudden, a 0-and-2 team was about to square off against the 18-and-0 New England Patriots. Now they've got a lot of experts in our society -- Coach, you might know what I'm talking about -- and in looking back it's hard to find many of the experts who predicted a Giant victory. Most people were calling it a cakewalk; you know, be prepared to turn off your television sets early because this isn't much of a game you're about to watch -- when, in fact, it turned out to be really one of the great, legendary football games in our country's history.

First of all, your defense was awesome, Coach -- (applause) -- and they deserve a lot of credit. And so does your offense. It was the 83-yard comeback drive in the fourth quarter that a lot of folks will remember for a long time coming. Eli Manning started one of the great plays called "The Great Escape" -- it ended on David Tyree's helmet. (Applause and laughter.) So why don't we take you in the White House, you can show me how you did it. (Laughter.) And then Plaxico Burress, of course, caught the winning touchdown with 35 seconds left. (Applause.)

This is a great team that worked together. You won the Vince Lombardi Trophy, and you won the deep gratitude of the 1972 Miami Dolphins. (Laughter.)

First of all, you've won the gratitude of your fans. New York Giants fans love these Giants. (Applause.) And so we congratulate you all, but we're also congratulating your families, your loved ones, those who make the locker room work, the trainers, the people who clean up after you. We want to -- we know you played for some -- ones who lost loved ones, like the Tyrees and the Maras and the Tisches. I know you loved going down the Canyon of Heroes for the first ticker-tape parade since before the attacks of September the 11th, 2001. And I guarantee you there was a lot of New York firefighters and police who were really thrilled to see you. (Applause.)

I like the fact that this team, the coaches and players offer free camps for kids. Some of them run life-changing ministries to raise money for children who have cancer. This is a team that supports the Ronald McDonald House and the United Way. It promotes family literacy through Read Across America. It's even helped run a charter school program in inner-city Newark.

I appreciate the fact, Coach, that you and your players support our troops, but more importantly our troops appreciate the fact that you support them. (Applause.) You've come to know the story, like I have, of Lieutenant Colonel Greg Gadson. He lost both of his legs while in Iraq. He first met up with the Giants in September when you invited him to address a pre-meeting that helped inspire the comeback over the Redskins.

Then you saw him in Tampa, when he was trying out his legs that he walked on today to be on the stage with you. He was an honorary captain in Green Bay. He never left the sidelines, despite the 23-below wind chill. In your last team meeting before the Super Bowl, Lieutenant Colonel Greg Gadson urged you to have pride in your team and believe in yourselves, which is exactly what you did.

I'm proud to be on the stage with this man. To me it's a symbol of your respect for our country and your patriotism, that you would let Greg Gadson be a part of this team. He has got the Purple Heart and three Bronze Stars, and now he's got a Super Bowl ring minted for a true giant. (Applause.)

So while you're still on your feet: The Super Bowl New York Giants. (Applause.)

COACH COUGHLIN: Thank you, Mr. President, for those words of inspiration. You did a great job of summarizing our season, and it's a true privilege for all of us to be here. Thank you for inviting the New York Giants to the White House.

We were called -- the New York Giants of 2007 were called "the road warriors." Well, we pale in comparison to the real warriors, the warriors that we visited today at Walter Reed. (Applause.) The thing that impressed all of us so much was their attitude, their positive attitude, the look in their eye, their patriotism, their knowledge of what they were fighting for. And as I always say, we receive great inspiration from our soldiers, and it's an honor to be with them, and it's an honor to have Greg Gadson with us in our drive to the Super Bowl Championship XLII. (Applause.)

The world champion New York Giants would like to present our President with a couple of gifts today. President Bush's father was President number 41. President Bush is President number 43. And we thought it only right that the Super Bowl champions of Super Bowl XLII should present him with this jersey, this championship jersey, to connect 41 and 43. (Applause.) Amani Toomer is presenting the President with this jersey. (Applause.) Thank you, Amani.

We also would like to present the President with a Super Bowl ball with all the signatures of our championship team. Eli Manning will present this ball. But Mr. President, when you place -- when you place this championship ball in your trophy case, and you pass by the ball, we would ask hopefully that you would reflect on the accomplishments of this great group of young men -- a group of men who believed in themselves, who refused to be beaten, and brought really greater honor and glory to the great game of professional football. Thank you very much. (Applause.)

END 3:30 P.M. EDT. For Immediate Release Office of the Press Secretary April 30, 2008

Tags: President Bush and Super Bowl XLII Champion or New York Giants