Extra Credit

The Federal Reserve Board proposed a new set of rules for Credit Card companies. It's a long notice but here are the ones I like. You can read it for yourself and find others you may like, think of it as a real boring scavenger hunt.

• Increasing the list of things that require advance notice. One example is that of penalty charges. WaPo says that you may not find out until you get your bill that you've been penalized because of paying late (get that one), going over their credit limits (who doesn't do this, and since you don't get notification for smaller infringements, you may not know when this happened) or falling behind with another lender (that just sucks, I get it, but notification would help people make wiser decisions in a crisis).
• Require that monthly statements show interest charges for different transactions and fees. Again, nothing wrong with charging different amounts, and nothing wrong with helping the customer understand this so they can make better decisions.
• Adding to the monthly statement information regarding how much interest and fees have been paid year to date. Again, just providing useful information.
  
• This is my favorite. The proposal would require that creditors show how long and how expensive it would be to pay off the debt making only the minimum payment.
• This is the most disturbing and itcorrects an issue that I didn't even know about. Again from WaPo. The new regs would "require companies to apply payments to the debt carrying the highest interest rate. Many companies now apply payments to the least costly debt, thus forcing customers to pay more in interest." If I did this with my customers, I wouldn't have customers. Clearly banks do, but my bet is that their customers don't know about this practice.
• Finally, while I'm rarely a fan of Congress tacking on extra things. Sen Levin is right to look into the practice of charging interest on payments already made. Whether that's better left as a disclosure issue that banks can compete on (my vote, I also think that as soon as its brought to the customers attention, the practice will evaporate. Again, that "practice" is just plain wrong), or made illegal is borderline irrelevant. Sometimes when you get too cute, you get burned. This feels way too cute, and maybe its best for the banks to get burned, and lose the ability all together.

The Credit Card companies are getting hip to the idea of getting burned, and are fully endorsing the Fed's proposals. Good move on their part.

I'm always, always a fan of more and clearer disclosure. The free market works best when all parties have access to information. The consumer needs the information to make the wisest choice, and the bank has a better relationship with its customer. Anytime someone doesn't want to tell you something, there's a reason and you should avoid the situation.