Changes Coming to the Loan, Credit Card Industry

The following are the key provisions of the loan change plan released by the OTS:

Reasonable time to make payments.

Institutions cannot consider a payment late unless consumers were given a reasonable amount of time to pay. Banks, thrifts and credit unions must ensure that credit card statements are mailed or delivered at least 21 days before the payment due date.

Double cycle billing.

Banks cannot use the practice known as double-cycle billing, in which they reach back into prior billing cycles to compute finance charges on outstanding balances based on balances in the most recent cycle. In the practice, a cardholder who begins a billing cycle with a zero balance, charges $500 on his card and makes an on-time payment of $450 would be charged interest on the full $500.

Interest rate increases on outstanding balances.

Banks cannot raise the annual percentage rate on an outstanding balance, except in certain conditions. For example, an institution could raise the variable rate if a promotional rate has expired or if the cardholder's payment is delinquent.

Payment allocation.

When different annual percentage rates apply to different balances, banks cannot allocate amounts paid above the minimum payment in a way that hurts consumers. Instead, they must apply the entire amount first to the balance with the highest annual percentage rate, or split the amount equally among the balances.

Fees from credit holds.

Institutions cannot assess a fee if a consumer exceeds the credit limit on an account solely due to a hold placed on the available credit unless the amount of the transaction would also have exceeded the credit limit.

Fees/deposits for credit issuance.

Banks cannot charge account-opening fees or membership fees to a credit card if they would use up most of the available credit on the account.

Firm offers of credit.

Banks offering credit cards that advertise multiple annual percentage rates or credit limit ranges must disclose the factors determining if a consumer qualifies for the lowest rate advertised.

Overdraft program opt out.

The proposed rules would also stop banks from charging a fee when they pay an overdraft for checking accounts, debit card purchases or ATM transactions, unless they give consumer the right to opt out of the payment of overdrafts.

Fees from debit holds. Banks cannot charge an overdraft fee if the overdraft is caused solely by a hold on funds that exceeds the actual purchase amount of the transaction.

Source: By Ideal Investment Corner