Fixing the fixed rate issue
TESS VIGELAND: The credit card industry’s taken a beating lately.
Two documentaries hit theaters this spring blasting card companies for helping plunge us into massive debt. Congress is looking into various slimy-sounding industry practices. And now this week, the Fed proposed making it easier to understand the mumbo-jumbo in our bills.
Greg McBride is here to explain. He’s with Bankrate.com. Greg, for those of us who can’t abide reading the fine, fine, fine print, it could literally get bigger?
GREG MCBRIDE: There are some big-print changes that you’ll see if this is instituted. Specifically, even a change in terms, instead of being tucked into some disclosure agreement that comes in the envelope along with the glossy brochures and your account statement, they would actually have to put that on the account statement. Now another aspect of these proposed changes is the fact that any change in terms, they would have to give you 45 days’ notice rather than the current 15. The idea being, “Let’s give consumers a little bit more time to evaluate their options.” One that’s long, long overdue is tightening the reigns on the use of the term “fixed rate.” Many consumers believe – and rightfully so – when they have a fixed rate credit card, the rate will never change. In reality, it’s fixed rate in credit card parlance is really only meant fixed until the issuer decides to change it.
VIGELAND: This is the first time that the Fed has taken a look at changing these rules since what, 1981? What’s prompting it now?
MCBRIDE: There’s been a lot of clamoring that it’s time to update these disclosure agreements. The fact is this movement to take another look at it is a step in the right direction and one that many would argue’s long overdue.
VIGELAND: How’s the credit industry reacting to this?
MCBRIDE: The credit industry, predictably, they put on a good face. But, you know, as with anybody, if somebody came into your office and said “We’re gonna change how you do your job and make it a little more difficult for you,” we’d have some issues with some of that. And there is about a four-month comment period through which the Federal Reserve will gather comments from both the industry as well as consumer groups before they craft the final revision.
VIGELAND: What impact, if any, could this move by the Fed have on the current moves in Congress to crack down on some credit card industry practices? You know they’ve talked about, for example, getting rid of universal default, where if you have a problem paying one card it affects interest rates on all of your other credit cards as well. Is that something that you think will continue to move through Congress?
MCBRIDE: That’s difficult to say. I mean, I think one is largely dependent upon the other. When we start to get a sense for what sort of final revisions will be made to the disclosure agreements, I think that will govern a lot of what you see from not only credit card companies, but also what you see from Congress going forward as well.
VIGELAND: All right. Greg McBride is a senior financial analyst with Bankrate.com. Thanks for joining us.
MCBRIDE: Thank you, Tess.
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