•Bernanke Says Speeding Up Credit-Card Rules to Dec. 1 May Hurt U.S. Banks

Discussion in 'Economics' started by ByLoSellHi, Oct 21, 2009.

  1. Poor banks.

    Thanks, Ben. You're doin' a heckuva job.



    Bernanke Airs Concern on Speeding Up Credit-Card Law (Update3)
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    By Peter Eichenbaum

    Oct. 21 (Bloomberg) -- Speeding up the effective date of new credit-card rules to Dec. 1 from next year may result in “unintended consequences” for banks, said Federal Reserve Chairman Ben Bernanke.

    “Card issuers must be afforded sufficient time for implementation to allow for an orderly transition and to avoid unintended consequences, compliance difficulties and potential liabilities,” Bernanke said yesterday in a letter to Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee.

    The credit-card law, which takes effect in stages, will require banks to apply payments to higher-rate balances first, limit rate increases and ban practices such as “universal default,” or raising rates based on a missed payment with another lender. Most of those rules are set to begin Feb. 22, while others such as limits on gift-card fees are scheduled to start Aug. 22.

    Barney Frank, the Massachusetts Democrat who heads the House panel, has said he wants to move up the start date to prevent banks from “taking advantage of the delay.” Card issuers including JPMorgan Chase & Co. and Riverwoods, Illinois- based Discover Financial Services raised interest rates and fees after President Barack Obama signed the Credit Card Accountability Responsibility and Disclosure Act on May 22.

    Fee Hikes

    “Some major credit-card issuers had arbitrarily increased rates, spiked fees and hiked minimum payments,” Ruth Susswein, deputy director of the nonprofit advocacy group Consumer Action, said in Oct. 8 testimony before Frank’s committee as she pressed for the earlier start date. “We hear from scores of cardholders who have paid on time each month, who have seen their rates rise, often double, often for no reason at all.”

    The committee may begin debating changes to the credit-card legislation tomorrow.

    While speeding the law “could benefit consumers by providing important protections earlier than scheduled,” doing so also would require the Fed to implement the remaining rules without giving the public advance notice and an opportunity to comment, Bernanke wrote in response to an Oct. 9 letter from Bachus.

    Bernanke’s comments echoed concern expressed by Discover Chief Executive Officer David Nelms, who said in a Sept. 17 interview that credit-card issuers must overcome “complex” technological hurdles to comply with the law and may not be ready if Frank succeeds in pushing up the start date.

    “There are parts of the card act that I don’t think you could accelerate that fast,” Nelms said, citing the requirement that issuers apply payments to higher-rate balances first because it requires extensive programming and testing.

    To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net
    Last Updated: October 21, 2009 11:46 EDT