U.S. Comptroller Opposes Many Fed Changes to Credit Card Rules

The Office of the Comptroller of the Currency, in a letter sent last week, is asking the Federal Reserve to reconsider “the overly broad restriction on the repricing of outstanding credit card balances and the potentially retroactive application of the proposed new substantive restrictions.”

The OCC said that though there does need to be “significant new boundaries on the ability of credit card lenders to reprice existing balances,…the pricing restriction in the proposed rule is more sweeping in scope than it needs to be.”

“The proposed restriction would prohibit card users from repricing outstanding balances after the expiration of the term of the card – even where the expiration date is plainly printed on the front of the card and the customer is fully informed of the potential for repricing of outstanding balances in advance of that time,” the OCC added. “Such a restriction would mean that unsecured revolving credit card debt – one of the riskiest forms of consumer debt – could be only be provided with the pricing terms that could not change when the risk of the repayment has clearly increased dramatically.”

Not allowing increased charges when risk has increased is inconsistent with safe and sound lending practices, the OCC said.

Nor should the consumer expect the rates to stay the same, the OCC added. “Provided adequate disclosure is provided, a consumer has little reason to assume the pricing terms are supposed to last beyond the term of the card, and certainly not forever.”

If there are any concerns about unfair treatment, consumers can always opt out of the new terms, the OCC points out.

Another concern, according to the OCC, is that the proposed repricng rules could lead to a broad credit tightening as credit card issuers reduce availability of cards and credit limits to reign in risk to account for the inability to change rates.

In addition to the repricing restriction, the OCC objects to the proposed provision for retroactive application of restrictions. Such a retroactive rule could make legal practices under current rules unfair under new rules. Since the new rules would be retroactive, they could make card issuers liable for practices that were legal when actually conducted, the OCC said.

Therefore, the OCC wants flexibility for issuers to adjust rates on outstanding balances to reflect any increased risk and wants the Fed to protect card issuers from any “liability trap” in any new rules.