New Rules Proposed for Credit Cards

The Federal Reserve recently announced a plan to crack down on some "tricky" features of credit cards. According to Fed Chairman Bernanke, this plan is "intended to establish a new baseline for fairness in how credit card plans operate."

Here are some of the highlights of the Fed Chair's proposal:

• Universal default clause: One credit card company cannot raise interest rates on you simply because you are having trouble paying another credit card account.
• Diverting funds: Lenders can no longer allocate payments to lower balances while you rack up interest on higher balances. This is a common practice currently for cash advances, which often have higher rates than your normal APR.
• Unfair time constraints on payments: Under Bernanke's plan, you must be given a reasonable amount of time before a payment is deemed late, such as 21 days.
• Retroactive rate increases: Lenders can no longer increase rates on existing balances under this plan.
• Double-cycle billing: This feature has allowed lenders to calculate your interest based on the average daily balance of two months. Under this billing method, you essentially end up paying interest on a balance you already paid off. Under the proposed Fed plan, this will no longer be permitted.
• "Security deposits" and other fees: Lenders will no longer be allowed to tack on fees simply for issuing credit or increasing available credit.
• Deceptive credit offers: The language on this section is not clearly defined yet, but it's good to know that this area is being addressed - especially if you have college-aged children, who are a big target for misleading credit offers.

     Keep in mind this is just a proposal and not yet enacted.  It could be next year before it takes effect and there is no guarantee it will be enacted at all.  It sounds to me like a step in the right direction though.

Bottom line - Read your credit card statements and know what companies are charging you for.