Possible good news for credit card users from the Fed on Thursday

You may see the credit industry reigned in on Thursday if the Federal Reserve approves, as expected, new regulations that have been considered since last May under the title "unfair and deceptive practices." In addition to the Fed vote, approval is expected from the Office of Thrift Supervision and the National Credit Union Administration. All three must approve the plan.

The Chief executive of the American Bankers Association, Edward L. Yingling, told the Washington Post, "It covers a lot of issues and is really unprecedented in its scope. You add them all up, it's going to mark the beginning of a new market."

So what will these changes mean for you? Let's look at two major changes that will help you to reduce the interest you pay on your credit cards:
  • * Ban on raising the interest rate on existing balances unless the customer was 30 days or more late in paying the minimum. Avoid paying the minimum late and you won't see your interest rates jacked up to 25 or 30 percent. Right now credit card companies have been increasing rates on people just a few days late or on people who made a late payment on another card. Banks can still increase rates if the card has a variable rate or a promotional rate set to expire.

  • Change the way credit card companies apply your payment. Right now most credit card companies apply the payment to the balance with the lowest interest rate. Thereby allowing balances with higher rates to build up interest charges. With the new rules banks would be prohibited from applying the entire payment to the balance with the lowest rate.

We don't know at this time how quickly these changes will take effect. The industry wants about two years in order to have time to reprogram their computers and change practices. Consumer advocates want the changes to take effect as quickly as possible. Right now the best guess is that the Federal Reserve will give the industry about six months.

The sooner the better. This will go a long way to helping consumers get out of the debt hole they now face. Some Democratic Congressional leaders do not think the new rules go far enough to protect consumers. Expect new legislation when the Congress reconvenes in January.

Lita Epstein has written more than 25 books including the "Complete Idiot's Guide to Improving Your Credit Score."
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