The Federal Reserve will soon unveil a broader plan to protect consumers from abusive credit card practices than a proposal it issued last year, a Fed official told lawmakers on Thursday.
The Fed's new plan, which it hopes to finalise by December, would restrict retroactive rate increases and other fees that consumer groups and lawmakers have criticised as exorbitant.
In February, US House of Representatives Democrats introduced a Bill to stop arbitrary interest rate increases, penalties for consumers who pay only a portion of their balances on time, and excessive fees charged by credit card issuers.
Sandra Braunstein, director of consumer affairs at the Fed, acknowledged that a Fed proposal last June did not go far enough to help consumers. That plan would have required plain-English disclosures by credit card issuers to help consumers understand fees and rates.
"Careful measures that would restrict credit card terms or practices may, in some instances, be more effective than disclosure to prevent particular consumer injuries," Ms Braunstein told a House Financial Services subcommittee hearing.
Chairing the hearing was Rep. Carolyn Maloney, a New York Democrat who wants Congress to adopt a credit card holder's bill of rights.
Some lawmakers expressed concern that the regulators' efforts could conflict with congressional efforts to revamp credit card rules.
"I'm very concerned about how we are doing this," said Rep. Mike Castle, a Republican from Delaware.
Banks that offer credit cards, such as Bank of America Corp and Capital One Financial Corp, oppose the legislation. They have warned it could raise fees and reduce the amount of credit available to consumers.
John Carey, chief administrative officer of Citigroup Inc. unit Citi Cards, said new restrictions would penalise responsible customers.
"The financial burdens associated with the higher-risk customers will be spread across all customers," Mr Carey said in testimony prepared for the subcommittee.
The Fed is aware that proposed restrictions could have unintended negative consequences, such as reduced credit availability and raised costs, Ms Braunstein said.
Also working on the proposed regulations to crack down on abusive practices are the US Office of Thrift Supervision (OTS) and National Credit Union Administration, she said.
OTS Deputy Director John Bowman said his agency shared lawmakers' concerns about the practice of increasing the annual percentage rate on an outstanding balance for reasons other than cardholder behaviour directly related to the account.
"In our... proposal we expect to place restrictions on some of these types of practices," Mr Bowman said.
Mr Bowman called the practice of computing finance charges based on account balances in billing cycles preceding the most recent billing cycle "troubling". For example, when a consumer makes a payment on a portion of his Bill, the credit card company may still charge interest on the full amount, even though part has been repaid.
"It is very difficult for consumers to avoid the increased costs associated with double-cycle billing because most consumers simply can't understand it," Mr Bowman said. "This is another area that we address in our proposal."