Fed Not Doing Enough to Improve Credit Card Disclosures, Practices

Fed governor Frederic S. Mishkin spoke to the House subcommittee Thursday, stating that their proposal issued last month to make credit-card disclosures more clear would benefit consumers and improve competition.

The proposal comes after recent pressure from consumer groups to improve industry practices such as overcharging cardholders for late fees and imposing harsh interest rate hikes to “more risky” consumers.

But Federal Deposit Insurance Corp. Chairman Sheila Bair felt that the Fed’s proposal didn’t sufficiently tackle all the controversial practices credit card companies continue to commit, and that her agency might consider strengthening the proposal to ban the practices entirely.

The new Fed proposal would order credit card companies to give borrowers at least 45 days notice before raising interest rates or fees, as opposed to the current 15 days notice. It would also call for clearer disclosures on fees, terms, and interest rates.

Citigroup, Bank of America, and Capital One Financial were present at the hearing and seemed to be happy with the proposal, likely looking to settle for enhanced disclosure and little physical change.

But if the proposal passes as it stands now, issues such as “universal default”, “risk-based pricing”, and the excessive fees and penalties these credit card companies charge will be left unchanged and considering this is the Fed’s first major review since 1981, more paperwork simply isn’t enough.

Unfortunately, the process to make any major changes could be riddled with red tape and complications arising from who has the power to change what, and with credit card issuers already arguing that their profit margins are razor thin, nothing may change.

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