The Federal Reserve has announced proposed federal regulations to prevent credit card practices employed by banks it has called "unfair and deceptive" to consumers.

The proposed regulations (.pdf), which have also won the approval of both the Office of Thrift Supervision and the National Credit Union Administration, would:

• Prohibit banks from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and require banks to allow the consumer to pay off that balance over a reasonable period of time.

• Prohibited banks from applying payments in excess of the minimum in a manner that maximizes interest charges.

• Required banks to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.

• Prohibit banks from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle. (Credit card issuers sometimes use various methods to calculate your balance that make use -- to their advantage -- of your last two month's account activity. Two-cycle billing can allow lenders to hit customers with finance charges even during months they pay off their balances in full.)

• Prohibit banks from charging security deposits for credit cards or other forms of consumer credit.

• Require banks to provide consumers a reasonable amount of time to make payments.

The proposed regulations would also address subprime credit cards by limiting the fees that reduce the available credit. In addition, banks that make firm offers of credit advertising multiple rates or credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.

Including a 75-day period for public comments, the Federal Reserve expects the new regulations to take effect by the end of 2008.

Also See:
Federal Regulations: Laws Behind the Acts
About the Federal Reserve System
FTC Warning on Credit Card Loss Protection Scams